Cousins REIT Bets On Rebalanced Office Market, Eyes ‘Compelling Investment Opportunities’
After seeing its office occupancy boosted by continued demand for “lifestyle space,” Cousins Properties plans to deploy fresh capital for high-quality office assets.
The Atlanta-based development and landlord REIT has one of the largest office portfolios across the Sun Belt and an 88.5% occupancy, up from 87.6% at the start of the year, Cousins President and CEO Colin Connolly said during its second-quarter earnings call.
This demand, paired with a national lack of new office development, could lead to a rebalanced market, Connolly said, as reported by CoStar.
Cousins is now eyeing “compelling investment opportunities” externally, he said, adding that it plans to grow its leasing market share and boost occupancy to more stabilized levels. The REIT is open to opportunities including debt, structured transactions, joint ventures and property acquisitions, Connolly said.
“Our core strategy remains the same: invest in properties that already are or can be positioned into lifestyle office in our target Sun Belt markets,” he said. “Near-term accretion is also a priority.”
A shortage of lifestyle office space in certain markets is not far off, Connolly said.
“Tenants' flight to quality and capital continue to differentiate the market, and while a broader office market recovery certainly appears to be underway, that is especially the case for lifestyle properties,” he said. “Cousins is well positioned to take advantage of the trend, and we're beginning to see compelling investment opportunities.”
The occupancy gap is expanding between top-tier and non-prime buildings, according to CoStar data. The average vacancy rate in top-tier properties was less than 15% in the first quarter, while it was more than 19% in properties with fewer amenities or in less desirable areas. That creates a gap of about 4.5 percentage points, up from less than 2 percentage points in mid-2018.
And Cousins is reaping the benefits. About 240K SF out of the 391K SF in signed leases reported for the second quarter were new or expanded, Executive Vice President of Operations Richard Hickson said. The lease growth helped boost Cousins’ Q2 numbers and marked its 41st consecutive quarter of positive rate increases, CoStar reported.
The overall office market remains plagued by a record amount of vacancy and an increased cost of financing, with the Fed yet to make any interest rate cuts. But Connolly said those problems are primarily in older buildings, and the “commodity office sector continues to struggle.”
“While some economic headwinds exist, we are encouraged by the improving fundamentals in the lifestyle office sector,” Connolly said.
Cousins has more than 19M SF of rentable office space in the Sun Belt, including markets like Austin, Charlotte and Tampa, Florida. The migration to the Sun Belt is a powerful tailwind, Connolly said.
“We own the highest quality lifestyle portfolio and we have a fortress balance sheet with the lowest leverage among office REITs and great access to capital,” he said. “I'm excited about the opportunities ahead.”
