One story that hasn’t received enough attention is the evolving state of office space. The COVID pandemic didn’t just reshape work habits – it disrupted the entire commercial real estate market. With the widespread adoption of remote and hybrid work models, businesses have reassessed their need for office space, leading to a noticeable decline in occupancy compared to pre-pandemic levels.
However, Jefferies analyst Peter Abramowitz sees signs of a potential turnaround despite ongoing challenges. He points to an improving sentiment in the office real estate sector, driven by a combination of factors, including an increase in return-to-office mandates and attractive valuations following years of underperformance, particularly for well-located, high-quality properties.
“Continued RTO [return to office] and a more deregulated business environment are long-term tailwinds for an office recovery, but net absorption should remain negative through ’26 (per CoStar). Given ongoing structural challenges, we remain selective in our picks, and are leaning into sustainable occupancy/earnings growth stories,” Abramowitz stated.
Abramowitz follows this with several specific picks of high-quality office REITs that also offer solid dividend returns – as high as 10%. We used the TipRanks platform to look up the details on his choices; here they are, along with the analyst’s comments.
Easterly Government Properties(DEA)
Recent events have brought the size and structure of the US government into the headlines, but one thing that only rarely gets talked about is Uncle Sam’s physical plant. The government needs space to work from – and that means office spaces for approximately three million workers. While the Federal Government’s largest presence is in Washington DC, it has various agency infrastructure, office spaces, and workers in all 50 states.
And this brings us to Easterly Government Properties, the first office REIT we’ll look at here. As its name suggests, Easterly’s activities are focused on providing office space to the US government; the company describes itself as ‘the partner of choice’ for the US Government when it comes to providing office space.
At the ground level, Easterly’s activities include the acquisition, development, and management of Class A commercial properties. These properties are then leased to Federal agencies, either through direct contract between Easterly and the client agency or through the Federal General Services Administration (GSA), which handles building oversight and real estate matters for the US Government. In all, Easterly’s portfolio currently includes 97 properties occupied by 20 different government agencies. Among the company’s largest agency tenants are the Department of Veterans Affairs (VA), the Drug Enforcement Agency (DEA), and the FBI. Other agencies that use smaller numbers of Easterly’s properties include the US Attorney’s Office, the FDA, the Department of Transportation, and the Social Security Administration. This REIT’s footprint is spread across the US, but is particularly noticeable in Maryland-Northern Virginia and in Southern California.
Easterly has found success through these activities, and its revenues – based mainly on rental income – have been increasing steadily over the past several quarters. In the last reported period, 4Q24, the company’s total top line came to $78.25 million, up 7.8% year-over-year – although it did miss the forecast by $1.24 million. At the bottom line, the company realized a Q4 core FFO of 29 cents per share, up a penny year-over-year and in line with the estimates.
The FFO should interest investors, as it supports the company’s regular dividend payment. This was last declared on February 20 and was distributed to shareholders on March 17; the dividend payment of 26.5 cents per common share annualizes to $1.06 per share and gives a forward yield of 10%.
Turning to Jefferies analyst Abramowitz, we find that he is upbeat on Easterly’s future and believes that the company can weather the structural changes that the Trump Administration – and the new Department of Government Efficiency, in particular – are pushing. Abramowitz writes, “Recent years have been challenged by lack of earnings growth, mainly driven by cost of capital constraints. The near-term focus on DOGE is understandable, but we think mostly priced in, and execution of the strategy should prove that DEA doesn’t own the typical commodity gov’t office that DOGE is looking to cut. As such, we think the growth profile is underappreciated at the current multiple, and recognition of that will help drive a re-rating.”
These comments support his Buy rating on DEA shares, and his $13 price target points toward a 12-month upside potential of 23%. Add in the dividend yield, and the total one-year return here may hit as high as 33%. (To watch Abramowitz’s track record, click here)
The Jefferies analyst represents the bullish view here; DEA shares have a Hold consensus rating, based on four recent analyst reviews that include 1 to Buy, 1 to Hold, and 2 to Sell. The shares are trading for $10.55, and the $12 average price target offers upside potential of 14% over the coming year. (See DEA stock forecast)
Highwoods Properties(HIW)
The second stock we’ll look at is Highwoods Properties, a REIT based in Raleigh, North Carolina, one of the country’s fastest-growing business hubs, and holding a portfolio made up mainly of locations in the best business districts (BBDs) of some of America’s most desirable urban areas. These include the company’s hometown of Raleigh, as well as Atlanta, Charlotte, Dallas, Nashville, Orlando, Richmond, and Tampa. In addition to these locations in southern states, the company also has properties in Pittsburgh, Pennsylvania.
Taken together, Highwoods’ portfolio contains 27.2 million square feet of leasable space. The company boasts that it can suit any space to any customer, that properties can be leased as-is, or developed to meet the customer’s idiosyncratic needs. This has proven a successful strategy, and at the end of 2024, Highwoods could point to an occupancy rate of 87.1%, well above the industry average.
We should note, however, that Highwoods had an occupancy rate of 91.1% as recently as mid-2022, a point that underscores the difficulties that the office REIT sector is facing. While Highwoods has had difficulty in maintaining its high occupancy rate, it has been able to compensate, at least in part, through an increase in cash rents, which are up year-over-year by 3.1% per square foot.
When we turn to Highwoods’ financial results, we find that the company finished 2024 with a quarterly revenue beat. The company’s 4Q24 top line came to $205.53 million, a figure that was down 0.6% from the prior year but was $1.49 million better than had been expected. Highwoods reported a Q4 FFO of 85 cents per share – and we should note that this was reported as ‘funds from operations available for common stockholders,’ and that leads us to the dividend.
Highwoods declared a common share dividend of 50 cents per share on January 29, which was paid out March 11. The $2 annualized payment gives a forward yield of 7%.
Once again, we’ll check in with Peter Abramowitz from Jefferies, who notes that this stock has seen its headwinds – but explains why those headwinds are likely to ease going forward. Abramowitz says of Highwoods, “HIW has had a challenging stretch of large move-outs across its portfolio, with occupancy likely troughing in 1H25. With those move-outs out of the way and fewer large expirations — only one >100K SF through 2027 — looking forward, we expect HIW to start reaping the benefits of strong in-migration and job growth trends in its Sunbelt markets, with a ramp in NOI/earnings growth coming from occupancy upside and the development pipeline beginning in 2H25.”
To this end, the analyst gives HIW stock a Buy rating, setting his price target at $32, suggesting a one-year gain of 11.5%. The total one-year return, counting the dividend yield and the share appreciation, could reach as high as 18.5%.
Once again, we’re looking at a stock with a Hold consensus rating. The 5 recent analyst reviews here include 2 to Buy and Hold, each, and 1 to Sell. HIW shares are currently priced at $28.72, and the average target price of $29.40 suggests the stock will stay rangebound for the time being. (See HIW stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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