With a focus on Sunbelt cities Highwoods Properties (HIW) has positioned itself as a relatively stable player in the market. As the economic outlook softens and remote work trends continue to shape the industry, Highwoods faces new hurdles that warrant careful consideration.

While Highwoods Properties has maintained a solid foundation, the rise of remote and hybrid work has resulted in reduced demand for office space. Several major tenants, including Bridgestone and the State of Georgia Department of Revenue, have downsized their office footprints. Highwoods’ occupancy rate has dipped to 89%, and with an increase in the supply of office buildings in Sunbelt cities, the company’s profits are likely to face pressure. As a result, Highwoods may need to rely more on non-cash flow financing and costlier variable-rate debt to complete its ongoing development projects. This could strain its payout ratio and balance sheet.

Highwoods Properties remains an appealing investment within a challenging market, with a solid balance sheet, diversified tenant mix, and strategic presence in high-growth Sunbelt cities. But, the company now faces new risks as the economic outlook weakens and remote work trends persist. Things are about to get very interesting in the REIT sector of the economy. Investors should carefully evaluate these factors and their own risk tolerance before making any investment decisions.