Highwoods Properties isn't wasting time in its pursuit of what executives have described as "a healthy pipeline of acquisition opportunities" now that it has lined up what is expected to be its largest office purchase since the pandemic.
The Sun Belt-focused real estate investment trust is in the final stages of a $223 million deal for the 6Hundred at Legacy Union tower in Charlotte, North Carolina. If finalized, the acquisition will mark Highwoods' most significant investment in recent years. It would also be one of the priciest office deals to close in the state since the onset of the pandemic in 2020.
The purchase of the newly constructed building at 600 S. Tryon St. would expand Highwoods' presence in the popular Legacy Union mixed-use development. It comes as the company pursues opportunities to upgrade its portfolio, with the demand for premium office space rounding a post-pandemic corner.
Combined with its existing properties in the uptown Charlotte neighborhood, the addition of the 6Hundred tower "positions us to benefit from the strong demand we're seeing as users gravitate to Legacy Union," Highwoods CEO Ted Klinck said in a statement about the "ideally situated" property.
The roughly 413,000-square-foot tower opened earlier this year and was spearheaded by Lincoln Property Co., the seller in the pending agreement with Highwoods.
Since landing a flurry of deals upon its completion, the 24-story development is now about 85% leased to a group of high-profile tenants such as American Express, coworking operator Industrious, accounting firm Cohn Reznick and law firm Robinson Bradshaw, which preleased about a quarter of the project back in 2022.
The Raleigh-based REIT already owns the neighboring Bank of America Tower as well as the Six50 South Tryon buildings, a Legacy Union footprint that, with the addition of the 6Hundred property, will collectively span upward of 1.6 million square feet.
The acquisition agreement with Lincoln is expected to close within the next 30 days.
Beyond 'office curious'
The Charlotte deal is part of a yearslong strategy for Highwoods, where it recycles capital from the sale of what Klinck has previously described as "non-core assets" to reinvest in deals for nicer, newer and better-located properties.
"With the capital markets opening up, we're starting to see more opportunities really across the risk and return spectrum," the CEO told analysts last month. "Sellers are bringing high-quality assets to the market, so yes, we're taking a look at various opportunities across all our markets."
The purchase comes several months after Highwoods paid $138 million to acquire the Advance Auto Parts high-rise building in Raleigh.
The company is part of a growing pool of large office landlords and investment firms aiming to strengthen their spots at the forefront of the office market recovery blooming across the United States.
The national vacancy rate of about 14% has largely hit its peak, according to CoStar research. While U.S. office leasing has yet to fully recover to pre-pandemic levels, the 12 million square feet of deals signed in the third quarter is the most since 2019.
The uptick in leasing since the beginning of the year has closed the gulf between occupied and leased rates, a residual sticking point for landlords that have struggled in recent years to backfill large blocks of space tenants ditched earlier in the pandemic.
As companies continue to sign on for more and larger deals, major REITs such as Highwoods, Cousins Properties, Kilroy Realty, BXP and Hudson Pacific Properties have become increasingly vocal about their plans to capitalize on the upswing — either by taking advantage of rising valuations to sell off some buildings or scout for chances to purchase attractive ones.
That interest is expected to heat up competition among prospective buyers, a trend Highwoods is already seeing as it shops around for new additions to its portfolio.
"There's more institutional capital coming to make bids, and there are more bids on every subsequent deal that comes out to market," Klinck recently said. "There's been a lot of capital that was office curious and is now getting more active. That is just going to help get this capital markets flywheel turning even more, which is going to be helpful for the office sector."