Cousins Sees 'Strong Demand' For Midtown WeWork Space Amid Improving Office Demand

Two of Metro Atlanta’s largest office landlords, Cousins Properties and Highwoods Properties, are piercing the yearlong gloom over the office market with news that they’re quite busy.

In fact, things are so busy, Cousins has ended talks with embattled coworking giant WeWork to renegotiate its lease at a tower in Midtown Atlanta, choosing instead to take the space out to market, Cousins Executive Vice President Richard Hickson said during a Feb. 8 earnings call. 

“Regarding 725 Ponce in Atlanta, due to strong demand from multiple traditional office users, we have decided not to negotiate with WeWork at this location and expect the lease to be rejected,” Hickson said. 

WeWork occupies 45K SF across two floors at 725 Ponce.

Hickson said Cousins, the city’s largest office owner at 8M SF, is in talks to modify WeWork leases at Terminus in Buckhead and 120 West Trinity in Downtown Decatur, reducing the locations by about 26K SF each and cutting rent.

“I would note our negotiations with WeWork are ongoing and have been very fluid today,” he said.

The demand behind WeWork’s 725 Ponce space, located in one of Atlanta’s hottest office submarkets over the past decade and next to the iconic Ponce City Market, is not an outlier in Metro Atlanta. Leasing activity in the fourth quarter of last year and thus far in Q1 belies the performance of the office market in 2023.

The office market posted negative net absorption of 3.8M SF last year, pushing total availability, both direct and sublet space, to an all-time high of 32.2%, according to Avison Young.

But Cousins leased 217K SF in Q4, it reported during the earnings call.

“I think where we've seen the strongest leasing activity to date has certainly been here in Atlanta, which benefits from a very diversified customer base,” Cousins CEO Colin Connolly said during the call.  

Cousins secured renewals for Wells Fargo at Terminus and Northpark, a nearly 600K SF office complex in Central Perimeter, for a combined 105K SF. And, Hickson said the firm has completed 200K SF in the first quarter of this year, 70% of which were new and expanding leases.

“We are seeing some interesting regional headquarters that are moving into particular markets, whether they be Tampa and Phoenix, as Colin mentioned, also here in Atlanta for certain. But we feel like there are good, good optimistic things happening in the early-stage pipeline,” Hickson said. 

JLL Executive Managing Director Jeff Bellamy said his firm is conducting more tours and seeing more requests for proposals from tenants, a positive sign that activity has picked back up, especially as companies begin to enforce a more concrete return-to-the-office mandate, even if just part-time.

“We’re all busy right now,” Bellamy said. “More companies are in the position to make decisions where before they were putting real estate decisions on hold.”

Those return-to-work mandates are part of the reason activity has picked up in the Sun Belt office markets, especially for Atlanta, Nashville and Raleigh, which combined posted two-thirds of the nearly 700K SF of leasing activity Highwoods Properties inked in the fourth quarter, Chief Operating Officer Brian Leary said during a Feb. 7 earnings call.

Activity in Atlanta included backfilling 50K SF of Novelis’ former 168K SF space at Two Alliance Center in Buckhead, with prospects eyeing the remainder of the space, CEO Ted Klinck said during the call. Novelis moved to and opened its headquarters at One Phipps Plaza last year. Highwoods also renewed the Georgia Department of Revenue for 110K SF at 2500 Century Parkway, downsizing the department from 255K SF and moving it from 1800 Century Blvd., both of which are in the Century Center office park just north of the city.

Highwoods also has signed 150K SF of new leases and 52K SF of expansions since January, Leary said. 

“We continue to see return-to-work programs and mandates raise the tide on physical occupancy with the recognition that Fridays will be the [rarest] days in the office, just as they were before the pandemic,” Leary said during the call. “Our customers are telling us [this] one-on-one and via their lease activity. They value the physical workplace, [where] their best and brightest can collaborate and solve problems, where talent can be onboarded and mentored, and where a company's culture can thrive.”

Greenwood Commercial Real Estate principal James Pitts said the flight to quality for office space has been fueled by corporate efforts to get employees back to the office. Companies scrambling to secure spots in amenity-rich trophy properties is generally the first sign of a more holistic office recovery, Pitts said. 

“The first thing you see coming back to life is in the trophy offices,” Pitts said.