Highwoods CEO Sees End to Office Densification Trend

Ted Klinck, president and CEO of Highwoods Properties, Inc. (NYSE: HIW), participated in a video interview in conjunction with Nareit’s REITweek: Virtual Investor Conference (being held June 2-4).

Klinck said the office REIT has been focused on liquidity issues and maintaining a fortress balance sheet, given the economic uncertainty. Other priorities include: keeping buildings safe for the return of tenants; working on tenant rent relief; reducing operating expenses and capex spending in a way that doesn’t affect the operating performance of properties; and, working to keep the $500 million development pipeline on schedule and on budget.

Meanwhile, Klinck said Highwoods is starting to think about future design changes, such as improved climate control systems or technology that allows contactless operations. However, “all of these things come at a cost and I don’t think we’re in a hurry to design buildings if we don’t know if some of these features are going to be needed or required by our customers in the future,” he said.

Companies are focused on the next 12-18 months and getting past this crisis, according to Klinck. “Companies today don’t want to panic and race to redo their work environment, just to have to reverse it in the next year or two.” As a result, companies are probably going to delay bringing employees back into the office, he predicted.

Longer term, companies will allow some of their employees to work from home some of the time, Klinck said, coupled with an increase in the square footage per employee. “I think the densification trend is over,” he said. “As a result, the de-densification of office could easily offset the increased work from home trend that we may see.”

Klinck stressed the importance of an office environment for daily interaction and collaboration, especially for younger employees who want to feel they belong within a company and are also seeking to build internal relationships.

In addition, Klinck highlighted the appeal of Sunbelt markets. “Migration to the Sunbelt has an opportunity to accelerate going forward,” he said.