Initiating coverage on U.S. office REITs, Deutsche Bank analyst Omotayo Okusanya has conferred Buy ratings to Alexandria Real Estate Equities (NYSE:ARE) and Highwoods Properties (NYSE:HIW) in a recent note.

The analyst foresees a challenging leasing environment for the sector in 2024, reflecting the surge in work-from-home roles post-pandemic.

However, the note also points out that a heightened level of concessions, tenant improvements, and leasing commissions are anticipated to stimulate demand, albeit at the expense of AFFO and cash flows.

Regarding Alexandria (ARE), Okusanya identifies multiple catalysts that are expected to drive the expansion, including “a better [venture capital] funding environment for Biotech, lease up of the development pipeline, and a likely inflection in occupancy and [same-store net operating income] growth in 2H24.

On the other hand, Highwoods (HIW) is noted to be trading at an “unwarranted” discount to office peers, despite possessing a stronger balance sheet than most of its suburban counterparts, according to the analyst.

Quant system from SA rates Kilroy Realty Corp. (KRC) highest among office REITs, followed by JBG SMITH Properties (JBGS) and City Office REIT (CIO).