Cousins Properties’ Outlook Positive for Sun Belt Office Market

The “flight-to-quality” has given hope to many prime properties in the face of historically high vacancy rates in the office market.

It now appears to be yielding real returns for publicly traded Cousins Properties, which used its most recent earnings call to tout its Atlanta portfolio as a trophy case of high-end office buildings. The local developer gave a similar outlook on its Class A office holdings in other Sun Belt cities, the Atlanta Journal Constitution reported.

Cousins owns approximately 20 million square feet of office buildings, including 14 in the Atlanta area. Its hometown holdings finished the first half of the year at 88 percent leased, Gregg Adzema, the investor’s chief financial officer, told the audience on the earnings call. That’s about 15 percentage points higher than the overall vacancy for offices in the metro market, according to CBRE research.

The trend has legs, according to Cousins CEO Colin Connolly, as the pipeline of development slows to a trickle in the Atlanta metro, where the office market totals about 150 million square feet. There were 1.4 million square feet under construction as of last month, according to CBRE.

“In simple terms, demand is increasing while supply is decreasing,” Connolly said. “This will lead to a rebalanced market. It’s economics 101.”

Adzema, meanwhile, said Cousins has benefited from an increase in employees going back to offices, adding tailwinds such as boosts in parking revenues for landlords.

Cousins’ portfolio in Atlanta includes marquee properties such as the Promenade Tower and the Terminus complex, and its portfolio is focused on the Sun Belt, ranging from Charlotte to Phoenix.

The contours of the flight-to-quality trend can be seen in recent big leases in Atlanta, where at least eight deals of 90,000 square feet or more closed in the second quarter, according to JLL. Nearly 5 million square feet of leases were signed in the first half of this year, the biggest total on a gross basis since the onset of the pandemic — although net absorption was about flat, leaving the availability rate around 30 percent.

Cousins, meanwhile, backed up its cheery outlook last week, paying $37 million for two mezzanine loans tied to properties in Nashville and Charlotte.

The off-market deals were part of “a wide variety of opportunities, including debt structure transactions, joint ventures and property acquisitions” that Cousins is considering, Connolly said.

Cousins reported net income of close to $8 million during the second quarter, down by around two-thirds from the same period a year ago. Its shares nevertheless got a 4 percent bump the day of the earnings call, and are up by 3 percent year-to-date, for a market capitalization of $4 billion.