One of the country's largest real estate investment trusts is all but certain the office market is officially bouncing back from its post-pandemic trough, echoing a sentiment among other large landlords across the United States as they report an accelerating resurgence in the demand for physical workspace.
Executives at Cousins Properties, a developer and landlord based in Atlanta, said leasing activity across its Sun Belt-focused portfolio has officially returned to pre-pandemic levels, the latest signal the company is interpreting as the national office market's widespread recovery. The company is already making moves to position itself at the forefront of what it expects will be a healthy rebound, something CEO Colin Connolly said is already in the works.
There are "signs that office fundamentals are improving," Connolly told analysts on the company's earnings call Friday.
To justify that position, the CEO added that Cousins' quarterly leasing volume for the three months ended Sept. 30 was its "highest since 2019," further proof that rising tenant demand — and their willingness to commit to space — is helping to push the market out from rock bottom.
The REIT signed upward of 763,000 square feet of leases through the third quarter, with about 611,000 square feet of new and expanded deals. That quarterly total has helped boost Cousins' year-to-date leasing volume up to nearly 1.6 million square feet and its portfolio leased rate beyond 91%.
What's more, the company's portfolio of high-quality properties has made it possible for Cousins to consistently bump up rents, marking its 42nd consecutive quarter of positive rate increases. Net rent jumped to upward of $45.20 per square foot, substantially higher than the nearly $37.65 per-square-foot rate it reported for the prior quarter.
Preparing for what's ahead
Over the past couple years, office landlords across the United States have pointed to their lineup of top-tier properties as a saving grace from the occupancy and leasing pitfalls plaguing owners of lower-quality assets. While the pool of companies signing new office deals has shrunk considerably since the pandemic's 2020 outbreak, the tenants that are willing to commit to space have homed in on high-quality real estate options as a tool to both aid in their return-to-office strategies and to help boost and retain talent.
Global tech giant IBM, for example, signed a full-building deal with Cousins last month to take over the entire Domain 12 building at 11800 Alterra Parkway in Austin, Texas. The deal not only backfilled space fellow tech company Meta was initially intending to occupy, but also gave IBM the chance to scoop up what a company spokesperson described as "new, modern offices" as it ramps up in-person work requirements for its employees.
For Cousins, that prioritization of well-located, highly amenitized spaces has helped boost its portfolio occupancy rate to 88.4%, marking a consistent rise since the 87.3% average it reported by year-end 2022.
As it moves through the remainder of the year and beyond, the REIT is racing to solidify its stance at the top end of the office market spectrum.
In August it closed a more than $80 million acquisition of a trophy office tower in midtown Atlanta, making good on a promise CEO Connolly issued earlier this summer to take advantage of "compelling investment opportunities" to expand the landlord's portfolio.
The developer's footprint includes more than 19.14 million square feet of rentable office space in markets such as Atlanta; Dallas, Houston, and Austin; Tampa, Florida; Charlotte, North Carolina; and Phoenix.
And with the market's ongoing improvement, Cousins isn't expecting to stop there, especially as the demand for high-quality space is expected to soon outpace available options.
"Looking ahead, we expect the supply of office buildings to continue to decline while leasing demand accelerates," the CEO said. "This is an attractive environment for us to drive leasing in our Sun Belt lifestyle office portfolio and identify compelling new investment opportunities."