Better offices, still waiting on demand
- Highwoods owns office buildings in Best Business Districts, which are amenity-rich work areas in Sun Belt markets.
- Occupancy slipped to 85.0% at March 31, 2026, so the recovery is not yet clean.
- Management sold $42.3 million of Richmond assets in Q1 and expects up to $250 million of non-core sales in 2026.
- A new $250 million buyback could help if asset sales close and shares stay cheap enough.
- The office risk is real: remote work, slower hiring, and AI could all shrink future space needs.
Asset sales are the swing factor
Highwoods is trying to prove that good office buildings in good Sun Belt locations can still compound value. The company focuses on Best Business Districts, or BBDs, in Atlanta, Charlotte, Dallas, Nashville, Orlando, Raleigh, Richmond, and Tampa. The bull case is simple: weaker office space keeps losing tenants, while better space in active districts keeps a reason to exist.
This period added a clearer path for capital recycling. Highwoods sold three Richmond buildings for $42.3 million in Q1 2026 and expects up to $250 million of non-core property sales during the rest of 2026. The board also approved a $250 million share repurchase program, with repurchases expected to be funded by asset sales, cash, and the revolver.
The bear case is also clearer. Occupancy fell from 85.3% at year-end 2025 to 85.0% at March 31, 2026. Management now expects average occupancy of 85.5% to 86.5% for the rest of 2026, below the earlier hope for a faster recovery. That means the company still has to fill space before higher rents and new assets fully show up in cash flow.
The next test is execution. Investors should watch whether the company sells assets at fair prices, buys back stock at sensible prices, and turns early build-to-suit interest into signed projects. Build-to-suit means a building planned around a specific tenant before construction starts.
Rent from higher-quality offices
Highwoods makes most of its money by leasing office space under long-term contracts. Tenants also pay for items such as parking and some property operating costs. As a REIT, the company must pay out most taxable income as dividends, so it relies on steady rent, debt markets, asset sales, and sometimes equity to fund growth.
The company is fully integrated. That means it owns, develops, leases, and manages its properties itself. This gives it closer control over tenant service, leasing decisions, maintenance, and redevelopment work.
The model works when tenants choose Highwoods buildings because the location helps workers come to the office. It breaks when companies take less space, delay move-ins, or demand expensive tenant improvements. Those costs can eat into the value of new leases even when headline rents look better.
Balance sheet risk matters too. At March 31, 2026, the company had $525.0 million of floating-rate debt, and interest expense was higher year over year in Q1 2026. Higher rates can reduce the benefit from acquisitions, development, and buybacks.
What Highwoods owns
BBD office buildings
These are the core assets. They generate rent from tenants that want higher-quality office space in active business districts.
Recently acquired Class-A assets
Recent deals include 600 at Legacy Union in Charlotte, The Terraces in Dallas, and Bloc 83 in Raleigh. These assets raise portfolio quality, but they need leasing and stabilization to earn their full return.
Development pipeline
Development can create value if large tenants commit early. Management says high-quality supply is getting tight, which is bringing more build-to-suit interest.
Land held for development
Land gives Highwoods future growth choices in its markets. It is useful only if demand and capital costs support new projects.
Property management and leasing platform
Highwoods manages leasing, maintenance, and customer service directly. The company sees this as a way to keep tenants and protect property quality.
Non-core assets for sale
The company is selling properties that no longer fit by location, age, quality, or strategy. Proceeds are expected to support the buyback and balance sheet flexibility.
One business, many markets
Highwoods reports one operating business: office real estate. The mix below uses March 31, 2026 balance sheet real estate assets at cost by filing line, because the latest 10-Q does not give revenue shares by market.
What could go wrong
Occupancy recovery stalls
High impact · Medium oddsOccupancy was 85.0% at March 31, 2026, down from 85.3% at December 31, 2025. If the company misses its 85.5% to 86.5% average occupancy target for the rest of 2026, rent growth and cash flow may lag the bull case.
Asset sales disappoint
Medium impact · Medium oddsHighwoods expects up to $250 million of non-core asset sales during the remainder of 2026. If sales are delayed or priced poorly, the buyback may be smaller or less useful. A bad sale price could also signal weaker private-market values for office buildings.
Office demand keeps shrinking
High impact · Medium oddsRemote work remains the main long-term threat. Companies may renew for less space or delay decisions if headcount plans are unclear. Better buildings can win share, but they cannot fully escape a smaller overall office market.
AI changes headcount needs
Medium impact · Medium oddsManagement said AI has not yet created much leasing demand, beyond one data-center-focused tenant in Dallas. The larger risk is that AI reduces future office headcount for some tenants. That would hurt demand even in strong districts.
Higher capital costs bite
Medium impact · Medium oddsDevelopment, acquisitions, and tenant improvements need capital. At March 31, 2026, Highwoods had $525.0 million of floating-rate debt, and Q1 interest expense rose from the prior year. If rates stay high, fewer projects will clear the return hurdle.
In one breath
What does Highwoods Properties do?
Highwoods is an office REIT. It owns, develops, leases, and manages office buildings mainly in Sun Belt business districts.
Why is occupancy so important for HIW?
Occupancy shows how much space is actually filled by tenants paying rent. Highwoods was 85.0% occupied at March 31, 2026, so filling vacant space is a key part of the 2026 recovery.
What is the 2026 buyback plan?
The board approved up to $250 million of common stock repurchases. Management expects to fund repurchases with non-core asset sales, cash, and borrowings under the revolving credit facility.
Is AI helping Highwoods leasing demand?
Not much yet. Management said it signed one AI-related tenant focused on data centers in Dallas, but has not seen much AI demand across the rest of its markets.