Highwoods Properties (HIW) Q1 2026: Lease Rate Jumps 800 Basis Points in Development Pipeline, Sharpening NOI Growth Visibility
Highwoods Properties delivered a quarter marked by robust leasing momentum and a sharply higher lease rate in its development pipeline, signaling embedded future cash flow growth. Strategic capital recycling, including $42 million in non-core asset sales and new investments in Dallas and Raleigh, is actively reshaping the portfolio toward higher-quality, higher-growth assets. Management’s steady hand on capital allocation, combined with a stabilizing market for top-tier Sunbelt office space, positions HIW for a multi-year ramp in NOI and FFO as occupancy and rents climb into 2027.
Summary
- Development Lease Rate Surge: HIW’s development pipeline reached an 800 basis point lease rate increase, setting up future income growth.
- Capital Recycling Accelerates: Non-core asset sales and targeted acquisitions are upgrading portfolio quality and cash flow durability.
- Occupancy Ramp Embedded: Signed leases and robust demand underpin a visible occupancy and NOI lift through 2027.
Performance Analysis
Highwoods posted a quarter of operational outperformance, with leasing momentum translating directly into higher lease rates and future rent growth. The in-service portfolio saw a 50 basis point lease rate increase, while the development pipeline achieved an 800 basis point surge, reflecting strong demand for Class A, “commute-worthy” assets in Sunbelt business districts. New and renewal lease signings totaled 958,000 square feet for second-generation space, with net effective rents climbing 9 percent above the prior five-quarter average. Notably, expansions outpaced contractions by nearly two to one, and first-generation leasing in development properties added another 107,000 square feet of future occupancy.
Portfolio churn continued as HIW sold $42 million of non-core Richmond assets, with blended cap rates at the upper end of the 8 percent range, and invested $108 million in joint ventures for premier Dallas and Raleigh properties. The company’s lease-to-occupancy spread—now at 470 basis points, three times the historical norm—signals a pipeline of signed leases not yet contributing to occupancy, laying the groundwork for a step-change in NOI and FFO as these leases commence. Cash rent spreads and net absorption both trended positively, and management reaffirmed full-year occupancy and FFO guidance, citing embedded growth from the current leasing backlog.
- Leasing Velocity Drives Upside: Robust second-gen leasing and new development signings are set to convert into higher occupancy and rent growth over the next 18 months.
- Portfolio Upgrade in Motion: Capital recycling out of non-core, CapEx-intensive assets is funding higher-quality acquisitions and potential share repurchases.
- Balance Sheet Remains Flexible: Over $650 million in liquidity and new secured financings support ongoing development and capital deployment.
Management’s operational discipline and focus on high-demand Sunbelt markets are translating into tangible financial momentum, with the bulk of the financial benefit from this quarter’s leasing activity set to materialize in 2027 and beyond.
Executive Commentary
"Leasing volume was strong across our in-service and development properties. This is clear from the 50 basis point increase in our lease rate on our in-service portfolio and 800 basis point increase in our lease rate on our developments. Both of these will deliver meaningful upside in NOI, cash flow, and FFO over the next few years as occupancy ramps."
Ted Klink, Chief Executive Officer
"Our lease rate is 89.7%, up from 89.2% one quarter ago. The spread between our lease and occupied rates of 470 basis points is three times our normal historical spread, a strong indicator for future occupancy gains. We reiterated our year-end occupancy outlook of 86.5% to 88.5%."
Brendan Majorana, Chief Financial Officer
Strategic Positioning
1. Sunbelt Flight-to-Quality Tailwind
HIW’s focus on “commute-worthy,” highly amenitized Class A assets in Sunbelt business districts (BBDs, best business districts) is driving strong tenant demand and pricing power. The ongoing shift of corporate relocations and expansions into Dallas, Raleigh, Charlotte, and Nashville underpins a landlord-favorable market, with limited new supply and rising net effective rents.
2. Embedded NOI Growth Pipeline
With 1.2 million square feet of signed leases set to commence by year-end and a 470 basis point lease-to-occupancy spread, HIW has “baked-in” occupancy and cash flow growth for the next several quarters. Only 48 percent of the newly leased development pipeline is occupied, so as these leases go live, substantial incremental NOI will be realized, supporting FFO accretion into 2027.
3. Capital Recycling and Portfolio Repositioning
Active asset sales—targeting $200 million of non-core dispositions by midyear—are being redeployed into high-growth markets and joint ventures, or used for share repurchases. This strategy is upgrading the overall portfolio quality, reducing CapEx drag, and enhancing long-term growth prospects.
4. Disciplined Capital Allocation and Share Repurchase Optionality
Management is balancing acquisitions, development, and now, a $250 million share repurchase authorization, to maximize risk-adjusted returns. Development is becoming more attractive given limited new supply and rising rents, but buybacks offer a flexible alternative for capital deployment if shares remain undervalued.
5. Resilient Balance Sheet and Liquidity
Over $650 million of liquidity and new mortgage financings provide ample flexibility to fund ongoing development and repay upcoming maturities. Debt-to-EBITDA is projected to improve to the low to mid-sixes, with further deleveraging expected as NOI ramps.
Key Considerations
This quarter’s results reinforce HIW’s strategic pivot toward higher-quality, higher-growth Sunbelt assets, with a visible path to occupancy and NOI expansion. Investors should weigh the following:
Key Considerations:
- Leasing Backlog Conversion: Signed but unoccupied leases create a visible growth runway for NOI and FFO as they commence through 2027.
- Sunbelt Market Strength: Corporate relocations and job growth in Dallas, Charlotte, Raleigh, and Nashville are fueling demand for HIW’s core office product.
- Capital Allocation Flexibility: Active asset recycling, new investments, and a buyback authorization provide multiple levers to drive shareholder value.
- Operating Expense Volatility: Q1 saw higher utility costs due to weather, but management expects flat full-year same-store expense growth on a cash basis.
- Limited New Supply: Historic lows in office construction and rising demolitions support landlord pricing power in HIW’s core submarkets.
Risks
While HIW’s high-quality Sunbelt focus insulates it from broader office market malaise, risks remain around macroeconomic uncertainty, potential AI-driven office demand shifts, and execution on planned asset sales. The company’s exposure to non-core markets like Pittsburgh and Richmond could weigh on results if disposition timing or pricing disappoints, and a slower-than-expected ramp in occupancy could delay NOI realization.
Forward Outlook
For Q2 and the remainder of 2026, HIW guided to:
- Year-end occupancy of 86.5 to 88.5 percent, implying a 250 basis point gain at midpoint.
- FFO per share guidance maintained at $3.40 to $3.68, with a ramp expected in the second half as occupancy and NOI rise.
For full-year 2026, management maintained guidance:
- NOI growth driven by lease commencements and development stabilization.
Management highlighted several factors that shape the outlook:
- Most financial benefit from current leasing will be realized in 2027 and beyond.
- Additional asset sales and mortgage financings are expected to further boost liquidity and deleveraging.
Takeaways
HIW’s Q1 performance demonstrates a successful execution of its Sunbelt-centric, high-quality office strategy, with embedded growth drivers and a disciplined capital allocation approach.
- Leasing Pipeline Sets Stage for NOI Acceleration: The current backlog of signed leases and high development lease rates are set to drive a multi-year ramp in occupancy and cash flow.
- Portfolio Upgrade and Capital Recycling: Ongoing asset sales and targeted investments are improving portfolio quality and growth prospects, while the buyback adds capital deployment flexibility.
- Watch for Occupancy Conversion and Asset Sale Execution: The pace at which signed leases convert to occupancy and the success of non-core asset sales will be key to hitting guidance and supporting valuation.
Conclusion
Highwoods Properties enters the remainder of 2026 with strong leasing momentum, a visible path to higher occupancy, and capital flexibility to drive shareholder returns. The Sunbelt office thesis remains intact, and HIW’s execution on leasing and capital recycling sets up a favorable multi-year earnings trajectory.
Industry Read-Through
HIW’s results underscore a bifurcated office market, where demand for top-tier, amenitized space in Sunbelt business districts remains resilient even as legacy and non-core assets face pressure. The “flight to quality” is accelerating, with limited new supply and corporate relocations fueling rent growth in select metros. For peers, the ability to recycle capital, maintain balance sheet strength, and capture embedded NOI growth in high-demand submarkets will separate winners from laggards as the office sector continues to evolve post-pandemic. Investors should monitor leasing backlogs, asset sale execution, and capital allocation discipline as key differentiators across the space.