Highwoods Properties is extending its office acquisition streak into the new year by shelling out more than $108 million, with additional equity, in a deal aimed at upgrading its national portfolio.
The Sun Belt-focused real estate investment trust recently closed on purchases of properties in Dallas and Raleigh, North Carolina, continuing a pursuit of what executives have described as “a healthy pipeline of acquisition opportunities” that has gained steam alongside the office market’s strengthening recovery.
In the largest of the two sales, the Raleigh-based landlord and developer paid $87.4 million for an 80% interest in The Terraces in the Texas city’s increasingly popular Preston Center area. It teamed up with Dallas-based investment firm Granite Properties to close on the 173,000-square-foot property, which is just shy of being fully leased.
Highwoods has also purchased a 10% stake in Bloc83, a two-building, 492,000-square-foot property in downtown Raleigh as part of a $210 million deal it closed alongside the North Carolina Investment Authority, its joint venture partner in the acquisition. The state pension fund entity now owns the majority share of the mixed-use asset that includes two office buildings that are about 97% leased.
The Texas and North Carolina deals are part of a yearslong strategy for Highwoods, in which it recycles capital from the sale of “non-core assets” to reinvest in deals for nicer, newer and better-located properties, Ted Klinck, Highwoods Properties’ chief executive and president, said in a statement.
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.
‘Growth potential’
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.
“With the capital markets opening up, we’re starting to see more opportunities really across the risk and return spectrum,” Klinck recently told analysts. “Sellers are bringing high-quality assets to the market, so yes, we’re taking a look at various opportunities across all our markets.”
The latest purchases land not long after high-profile deals the Sun Belt landlord closed in the latter half of last year.
In November, it finalized a $223 million deal for the 6Hundred at Legacy Union tower in Charlotte, North Carolina, that marked Highwoods’ most significant investment in recent years. It was also one of the priciest office deals to close in the state since the onset of the pandemic in 2020.
And just a few months before that, the REIT paid $138 million to acquire the Advance Auto Parts high-rise building in Raleigh. Combined with its Bloc83 purchase, Klinck said Highwoods now owns about 2 million square feet of office space in the city’s downtown, a footprint that provides it the “flexibility to accommodate the evolving space needs of our existing customers and prospects.”
Leveraging opportunity
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 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 taken 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 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.”
Best of the bunch
With its Dallas deal, specifically, Highwoods is planning to bulk up its regional portfolio alongside mounting demand in the Texas city.
Preston Center is near affluent Dallas neighborhoods, including Preston Hollow, Highland Park and University Park. The REIT identified the area as a place where it would like to invest when it entered the Dallas market in July 2022.
At the time, Highwoods teamed with Granite Properties on two office investments, including 23Springs in Uptown Dallas and Granite Park Six in Plano, Texas, a suburb of Dallas. Months later, trophy office tower McKinney & Olive also sold to the pair. The REIT’s latest acquisition “deepens our relationship with our partner in Dallas, Granite, and marks our entry into Preston Center,” Klinck said.
“Preston Center is the most supply-constrained [business district] in the Dallas market with a healthy outlook for long-term rent growth,” Klinck added. “With in-place rents 30% below market, there is significant upside at The Terraces as leases roll during the next few years.”
The Terraces was 98% leased at the end of 2025 with tenants that include WeWork, Compass, Berkadia and Northwestern Mutual. At the end of December, the weighted average lease term was seven years. Highwoods and Granite plan to invest $2.5 million into property upgrades.
Upon stabilization of Highwoods-backed development properties in the Dallas area, the REIT said the metropolitan would become the fifth-largest market in its portfolio.