Highwoods Properties, Inc. (HIW): 5 FORCES Analysis [Nov-2025 Updated]

As a seasoned analyst who's seen a few market cycles, you're definitely looking at Highwoods Properties, Inc. (HIW) right now to see if its Sunbelt office focus is paying off in this tricky late-2025 environment. Honestly, the picture is mixed: your customers are sticky, with average lease terms hitting 6.7 years and driving solid rent growth, but the cost of capital is a real headwind, with construction loans hovering around 7-9%. I've mapped out the full competitive landscape-from the high rivalry with peers like Cousins Properties to the low threat of new builds-so you can see exactly where the near-term leverage lies for HIW. Keep reading to see the full breakdown.

Highwoods Properties, Inc. (HIW) - Porter's Five Forces: Bargaining power of suppliers

The bargaining power of suppliers for Highwoods Properties, Inc. (HIW) remains a significant factor, particularly in the development and construction segments of its business. Suppliers in this context include providers of raw materials, skilled labor, and, crucially, capital providers (lenders).

Construction input costs are elevated, directly impacting the cost structure for any new development or significant capital expenditure projects HIW undertakes. For high-rise office construction in the Sunbelt markets where Highwoods Properties focuses, estimated costs per square foot in 2025 range from $545 to $654 per square foot. This range reflects the complexity and quality associated with Class AA office towers in Best Business Districts (BBDs).

The leverage held by material and labor suppliers is being actively felt. Projections for 2025 suggest that material and labor costs are set to increase moderately, with forecasts pointing to a rise between 5% and 7% year-over-year. This moderate but persistent inflation boosts supplier leverage, as it compresses margins for general contractors who then pass these costs onto property owners like Highwoods Properties, Inc. (HIW).

The power of capital providers-the lenders-is also high due to the prevailing interest rate environment in 2025. While rates are showing signs of stabilization, construction loan costs remain substantially above historical lows. Effective borrowing costs for commercial construction loans are frequently cited in the 7% to 10% range, with some commercial construction loan terms reaching as high as 13.8% for shorter durations. This high cost of debt directly translates to higher hurdle rates for new projects, giving lenders significant pricing power.

Highwoods Properties, Inc. (HIW) mitigates some of this supplier power through its operational structure. As a fully integrated office real estate investment trust that owns, develops, acquires, leases, and manages properties, the company integrates the supply chain to a degree. This in-house development and management capability allows HIW to control certain aspects of the process, potentially reducing reliance on external general contractors for every phase, thereby partially offsetting supplier leverage.

However, the immediate pressure from capital suppliers is temporarily eased by prudent balance sheet management. While Highwoods Properties, Inc. (HIW) had a $200,000,000 variable rate term loan originally scheduled to mature in May 2026 (Q2 2026), the company proactively modified this, extending the maturity date to January 2029 in August 2025. This extension effectively removes a major refinancing event from the immediate 2025/early 2026 horizon, reducing the near-term refinancing leverage of capital suppliers.

Here is a summary of the key cost and financing data points influencing supplier power:

The dynamics of supplier power are multifaceted for Highwoods Properties, Inc. (HIW):

• Material costs remain volatile, with steel prices near $912 per ton as of February 2025.
• Labor costs are rising due to shortages, following a 3.7% wage and salary increase for the 12 months ending December 2024.
• The company's focus on high-quality assets in Best Business Districts (BBDs) means it is less sensitive to the lowest-cost suppliers.
• The extension of the $200 million loan to January 2029 provides a buffer against immediate lender demands.
• The company's development pipeline is currently 59% leased as of early 2025, providing some secured revenue visibility for future construction needs.

Finance: draft 13-week cash view by Friday.

Highwoods Properties, Inc. (HIW) - Porter's Five Forces: Bargaining power of customers

You're looking at the customer power dynamic for Highwoods Properties, Inc. (HIW) as of late 2025, and honestly, the numbers suggest customers have limited leverage. This is largely because the tenant base is spread out quite a bit. As of September 30, 2025, Highwoods Properties has an internal guideline to review any customer accounting for more than 3% of revenues with the Board of Directors. The reality is that only two tenants exceeded that threshold in Q3 2025: Bank of America at 3.9% and Asurion at 3.6% of annualized GAAP revenues. That means no single customer is close to the 4% mark, which really diffuses any single customer's ability to dictate terms.

The revenue stream is further locked in by lease duration. For second-generation leases signed in the third quarter of 2025, the dollar-weighted average term was 6.7 years. Long terms like that definitely reduce tenant mobility and secure future cash flow, which is a big plus for Highwoods Properties.

Switching costs for tenants are high, primarily because Highwoods Properties focuses on owning, developing, and managing properties in the Best Business Districts (BBDs) across its core Sunbelt markets. When companies want to be where the talent is, they often have to pay a premium for that Class A BBD space, making a move to a less desirable location a real headache for their operations.

Even with overall market occupancy being soft, Highwoods Properties' portfolio shows resilience. The in-service portfolio occupancy at HIW share was 85.3% at the end of the third quarter of 2025. The company even projects year-end occupancy to land between 85.7% and 86.3%. That slight expected increase by year-end shows they are managing the current environment well.

Leasing activity is robust, which signals landlord strength in their specific niche. For second-generation leases executed in Q3 2025, GAAP rent growth was 18.3% higher compared to the previous leases in those same spaces. Furthermore, the GAAP rents signed were 18% higher than expiring rents, averaging over $40-plus per square foot. Net effective rents for that quarter were even stronger, coming in 21.8% higher than the previous five-quarter average. Here's the quick math: that kind of rent growth shows tenants are willing to pay up for Highwoods Properties' assets.

You can see the operational strength in the table below:

The factors limiting customer bargaining power for Highwoods Properties, Inc. include:

• Tenant concentration is low; top two tenants are below 4%.
• Long average lease term of 6.7 years locks in revenue.
• Strong demand for Class A BBD assets creates high switching costs.
• Q3 2025 second-generation GAAP rent growth reached 18.3%.
• Nashville market unemployment is exceptionally low at 2.9%.

If onboarding takes 14+ days, churn risk rises, but Highwoods Properties' leasing velocity suggests they are minimizing that downtime.

Highwoods Properties, Inc. (HIW) - Porter's Five Forces: Competitive rivalry

Rivalry within the Sunbelt office space is definitely high and, frankly, bifurcated. You see intense competition among the Class A Sunbelt office REITs, with Cousins Properties being a key peer in this fight for top-tier tenants. This rivalry is fought over quality and location, not just price.

Highwoods Properties, Inc.'s focus on Best Business Districts (BBDs) in high-growth markets concentrates this rivalry right where they operate. Raleigh, North Carolina, is their largest market, accounting for 23.3% of Net Operating Income (NOI) share as of the third quarter of 2025. Nashville follows closely at 20.1% of NOI share. To be fair, this concentration means they are competing directly with others who are also targeting the most resilient tenant pools.

The market is clearly consolidating. Class A assets, like those Highwoods Properties, Inc. targets, are outperforming, while owners of older Class B/C assets are struggling or actively exiting the space. Highwoods Properties, Inc. owns approximately 26.8 million square feet as of March 31, 2025, with a strategy centered on premier office spaces. The pressure is on to maintain and upgrade these assets to justify premium rents.

Highwoods Properties, Inc.'s Q3 2025 Funds From Operations (FFO) of $0.86 per share met the consensus estimate, showing stability in a tough environment. Still, this figure was down from the prior-year quarter's $0.90 per share, suggesting that while they are holding steady with peers, there isn't a clear-cut earnings advantage yet. Management did raise the full-year 2025 FFO guidance to a range of $3.41-$3.45 per share.

To win and retain tenants in this competitive environment, significant capital is required, which translates to high leasing capital expenditures (CapEx). The leasing activity in Q3 2025 shows the cost of securing long-term commitments:

• Second-generation leasing totaled 1.0 million square feet.
• GAAP rent growth on these deals reached 18.3%.
• The dollar-weighted average lease term secured was 6.7 years.

This level of activity and rent growth indicates tenants have options but are willing to commit for quality space, forcing Highwoods Properties, Inc. to invest heavily to secure that commitment. Here's a quick look at the geographic concentration that defines this rivalry:

The in-service portfolio occupancy at the end of Q3 2025 stood at 85.3%. Keeping that number up, especially against peers, is the daily battle. Finance: draft 13-week cash view by Friday.

Highwoods Properties, Inc. (HIW) - Porter's Five Forces: Threat of substitutes

You're looking at how other options stack up against Highwoods Properties, Inc.'s (HIW) Class A office product. Honestly, the threat from substitutes has sorted itself out into a clear hierarchy by late 2025, which is good news for owners of top-tier assets.

The biggest potential substitute, remote work, has settled into a routine. Employer data suggests work has stabilized around roughly one remote day per week on average across the U.S.. This means the office is still essential. Furthermore, in Q3 2025, 64% of new professional job postings were for fully on-site roles, though 24% were hybrid. This policy push suggests many large employers, like those in the Fortune 100, are definitely enforcing significant in-office time, which limits the substitution effect.

The market has bifurcated, which is the key dynamic here. The strong 'flight to quality' means Highwoods Properties, Inc.'s Class A portfolio is much harder to substitute than older stock. Tenants are actively migrating away from lower-tier buildings, leading to a massive divergence in performance metrics.

Older, functionally obsolete Class B and C offices are the most direct substitute, but they are struggling mightily. Nationally, overall office vacancy rates hit 20.7% in Q2 2025. In some major centers, this is much worse; San Francisco reported 27.7% vacancy, and Downtown New York and Charlotte were near 23%. This pressure is forcing action: 149 million square feet nationwide are earmarked for conversion or demolition.

Co-working and flexible spaces remain a minor substitute, often acting more as an amenity layer than a full replacement for large, long-term tenants. For instance, a single listing for a Class B building in Raleigh shows coworking availability starting Dec 01, 2025, indicating integration rather than wholesale replacement of traditional leases.

Tenants are showing a clear willingness to pay a premium for the quality Highwoods Properties, Inc. offers, which reduces the price elasticity of demand for its product. They are paying for prestige and modern infrastructure. Here's the quick math on the rental gap as of September 2025 averages across the U.S.:

This gap is why Highwoods Properties, Inc. can command strong pricing. Their Q3 2025 GAAP rent growth was 18.3% compared to expiring rents, hitting a record of $40+ per square foot. The trailing 12-month average net effective rent is 18% higher than the pre-pandemic peak of 2019.

The substitution threat is mitigated by the quality focus, as evidenced by these trends:

• Class A effective rents rose 5.2% since 2023, while Class B/C fell 5.7%.
• Highwoods Properties, Inc.'s Q3 2025 average occupancy was between 85.4% and 85.8%.
• The company's Q1 2025 portfolio occupancy stood at 88.1%.
• The development pipeline is now 72% leased, signaling confidence in future demand for new, high-quality space.

Highwoods Properties, Inc. (HIW) - Porter's Five Forces: Threat of new entrants

The threat of new entrants for Highwoods Properties, Inc. (HIW) remains low, primarily because the capital and scale required to compete effectively in their Best Business Districts (BBDs) create significant barriers to entry.

New speculative office development is financially challenging for potential competitors. Construction loan interest rates in late 2025 are elevated, with commercial construction loans for 1-3 year terms typically ranging from 6.8% to 13.8%. For smaller or less established players, financing options like SBA 7(a) loans carry rates between 7.50% and 9.00%. These borrowing costs make launching speculative projects, which are not pre-leased, financially unviable for many outside of well-capitalized entities like Highwoods Properties, Inc. (HIW).

The broader national new office construction pipeline reflects this caution. As of November 2025, just over 33 million square feet of office space was under construction nationwide. This is a sharp contraction compared to historical levels; for instance, construction completions in 2018 totaled 51.2 million sq. ft.. The projected 2025 completion total of 12.7 million sq. ft. is significantly below half of that 2018 volume (which would be 25.6 million sq. ft.), underscoring a muted new supply environment.

Highwoods Properties, Inc. (HIW) is actively managing its own development exposure, which further limits the space available for new entrants. The company has secured future supply through leasing commitments on its current projects.

Furthermore, competing in the specific submarkets Highwoods Properties, Inc. (HIW) targets-its BBDs in cities like Dallas, Tampa, and Raleigh-demands deep, localized expertise and established scale. New entrants lack this entrenched operational footprint and tenant relationships.

The current state of the national pipeline shows a clear preference for pre-leased or build-to-suit projects over speculative development, a strategy Highwoods Properties, Inc. (HIW) is executing successfully. In Q2 2025, the national pipeline had 58.9% of its square footage preleased.

The barriers to entry are high due to:

• High capital costs for land acquisition and construction.
• Difficulty securing financing at competitive rates.
• Immense local knowledge required for BBD positioning.
• Scale needed to compete with an established, integrated REIT.