Q2 2023 Cousins Properties Inc Earnings Call
Participants
Gregg D. Adzema; Executive VP & CFO; Cousins Properties Incorporated
Michael Colin Connolly; President, CEO & Director; Cousins Properties Incorporated
Pamela F. Roper; Executive VP, General Counsel & Corporate Secretary; Cousins Properties Incorporated
Richard G. Hickson; EVP of Operations; Cousins Properties Incorporated
Anthony Franklin Powell; Research Analyst; Barclays Bank PLC, Research Division
Blaine Matthew Heck; Senior Equity Analyst; Wells Fargo Securities, LLC, Research Division
Camille Bonnel
Dylan Burzinski
Jay Poskitt
Nicholas Patrick Thillman; Research Associate; Robert W. Baird & Co. Incorporated, Research Division
Peter Dylan Abramowitz; Equity Analyst; Jefferies LLC, Research Division
Regan Sweeney; U.S. Real Estate Associate; BMO Capital Markets Equity Research
Unidentified Analyst
Presentation
Operator
Good day, and welcome to Cousins Properties Second Quarter Conference Call. (Operator Instructions) Please note that this event is being recorded.
Now I'd like to turn the call over to Ms. Pamela Roper, General Counsel.
Pamela F. Roper
Thank you. Good morning, and welcome to Cousins Properties Second Quarter Earnings Conference Call. With me today are Colin Connolly, our President and Chief Executive Officer; Richard Hickson, our Executive Vice President of Operations; and Gregg Adzema, our Chief Financial Officer. The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. If you did not receive a copy, these documents are available through the quarterly disclosures and supplemental SEC information links on the Investor Relations page of our website, cousins.com.
Please be aware that certain matters discussed today may constitute forward-looking statements within the meaning of federal securities laws, and actual results may differ materially from these statements due to a variety of risks and uncertainties and other factors including the risk factors set forth in our annual report on Form 10-K and our other SEC filings. The company does not undertake any duty to update any forward-looking statements, whether as a result of new information, future events or otherwise. The full declaration regarding forward-looking statements is available in the supplemental package posted yesterday, and a detailed discussion of some potential risks is contained in our filings with the SEC.
With that, I'll turn the call over to Colin Connolly.
Michael Colin Connolly
Thank you, Pam, and good morning, everyone. We had a strong second quarter at Cousins. On the earnings front, the team delivered $0.68 per share in FFO and same-property net operating income increased 3.7% on a cash basis. We leased 435,000 square feet during the quarter with a 7.9% cash rent roll-up. New leases and expansions totaled 343,000 square feet representing 79% of total leasing activity. These are terrific results.
I will start with a few observations on the macro environment. The Federal Reserve has rapidly raised interest rates to fight inflation. As a result, the economy is moderating, and financial conditions have tightened. Real estate debt is less available and significantly more expensive. A meaningful bid-ask spread has frozen the investment sales market, but none of this should be a surprise. This is all typical behavior in a tightening cycle.
Over the short term, the macro narrative for the office sector is likely to get worse before it gets better. The media will highlight rising vacancy rates and accelerating loan defaults. This reporting will not be wrong. However, this news will not be all that relevant to Cousins. Why do I say this? Because as they say, where you invest matters. At Cousins, we own a fantastic collection of lifestyle office properties located in vibrant Sun Belt neighborhoods with terrific amenities. Our assets are entirely differentiated from traditional office, in older downtowns and nondescript suburban locations. Importantly, we are seeing green shoots in our portfolio.
I'll highlight the trends. First, the return to work is accelerating in our properties. As it turns out, lifestyle office properties are occupied by ambitious professionals who value an in-person experience with maybe the Friday exception. Collaboration, mentorship and serendipitous encounters are key to advancing their careers. Come visit one of our properties and you will see a very different story than the next [casual] headline. Importantly, as the return to work process plays out, we have seen instances where our customers realize that they do not have enough space to support the hiring of the past several years. Richard will touch on an exciting example of this at our Domain 8 property in Austin this quarter.
Second, the flight to quality is becoming more pronounced. The net absorption and vacancy numbers prove this out. To illustrate, according to JLL 75% of the vacancy in Atlanta is in just 20% of the inventory. That statistic is probably eye-opening to some.
Third, the flight to capital is increasingly more important. Historically, landlords evaluated the credit of prospective customers. Today, it goes both ways. Prospective customers and their brokers are now evaluating the credit of their landlords, not surprising, owners with sound capital structures like Cousins that can fund leasing costs and invest in their properties are growing market share.
Fourth, there is little to no capital availability for older vintage, lower-quality office properties for speculative new development. So what are the implications for the office sector? It is not a one-size-fits-all answer. The lowest quality, traditional offices and uninspiring locations are emptying and will stagnate until they are re-purposed or torn down. At the same time, the lifestyle office is filling up and it will thrive. As I said last quarter, the office is not dead, obsolete office is dead. The market and the media continues to underappreciate this. We believe that there is great opportunity for investors who do.
So what are the implications for Cousins? Silver linings are taking shape for our Sun Belt Trophy portfolio. Our customers are returning in greater force, accelerated obsolescence is reducing competition. The pipeline of new construction is shrinking, and demand remains firmly focused on the best lifestyle properties in the best submarkets. Just yesterday, JLL announced that the inventory of U.S. office space is on track to shrink in 2023 for the first time on record. Supply and demand are rebalancing. We believe this process will lead to tightening market conditions for lifestyle office. These are clearly positive tailwinds for Cousins.
In closing, we are mindful of the potential impact of higher interest rates in an economy that could slow. However, we built Cousins to thrive during all phases of the economic cycle. And today, we are in an advantageous position. We operate in leading innovation, growth-oriented markets. We own a Trophy portfolio of lifestyle office properties with modest near-term lease expirations. We have a fortress balance sheet with minimal near-term debt maturities, and we have a well-covered dividend.
Importantly, we have significant liquidity and capacity to pursue compelling new investments in a dislocated market when many peers now lack capital to compete. However, the downward repricing of assets in the private market is still playing out. Thus, we will remain patient, disciplined and continue to prioritize driving cash flow and maintaining a strong balance sheet. We are watching closely for new opportunities, though, and we will be ready when it's time.
Before turning the call over to Richard, I want to thank our employees at Cousins who provide excellent service to our customers. Their dedication, resilience and hard work continues to propel us forward. Thank you. Richard?
Richard G. Hickson
Thanks, Colin. Companies spanning all sizes, industries and geographies are now decidedly brining employees back to the office for more frequent in-person work and our encouraging second quarter operational results are reflective of that positive trend. Before reviewing results, I want to provide an update on the bankruptcy of SVB Financial Group, the entity on our 205,000 square foot lease at Hayden Ferry 1 in Phoenix.
We have considerably more clarity on the situation now as the bankruptcy court has approved SVB's rejection of our lease with a targeted expiration date of no later than September 30, 2023. Upon SVB's move out, we plan to remove Hayden Ferry 1 from operations in connection with the redevelopment of the overall Hayden Ferry project. We believe this redevelopment will redefine the standard of quality in the Tempe submarket and are excited about the opportunity to backfill Hayden Ferry 1, especially given SVB's average expiring rent is below market. While it is early, a number of prospects have already looked at the space. Gregg will walk through the financial details around the situation in his remarks.
On the operating results. Our total office portfolio weighted average occupancy increased 0.5% this quarter to 87.7%, and our end-of-period lease percentage remained unchanged at 90.8%. Our largest percent increases in occupancy were in Phoenix and Houston, though nearly every one of our markets saw some level of improvement. Looking forward, we still expect to maintain occupancy through 2023, absent Hayden Ferry 1 and Promenade Central redevelopment projects. We are also hopeful we can begin to build occupancy during 2024, subject to the timing of the commencement of new leasing activity.
In the second quarter, we executed a solid 40 office leases totaling 435,000 square feet with a weighted average lease term of 7 years. This quarter's volume was a significant increase compared to the first quarter. Also notable is that new and expansion leasing volume this quarter accounted for 79% of our total activity, a level not seen since 2021. Average net rent was exceptionally strong this quarter at $38.65, the second highest quarterly level in the company's history. In addition, average leasing concessions, defined as the sum of free rent and tenant improvements moderated relative to the last couple of quarters coming in just below what we reported for the full year of 2022.
The lower concessions this quarter were principally aided by the previously disclosed 102,000 square foot expansion of a large publicly traded technology company at Domain 8 in Austin, which was completed on an as-is basis with no tenant improvement allowance and no downtime. As Colin mentioned, this is an example of a company that concluded that they simply did not have enough space to accommodate the hiring they did over the past several years.
Nevertheless, with record-breaking net rents and lower concessions, our average net effective rents this quarter were also exceptionally strong at $28.20 again, the second highest quarterly level in the company's history. I would note that even when excluding the large as-is expansion in Austin, our average net effective rents were impressive, with only 1 quarter proving better since the start of the pandemic. Healthy second-generation net rent growth also continued this quarter coming in at 7.9% on a cash basis.
Our late-stage leasing pipeline consisting of leases in negotiation has backfilled nicely as we converted leases to sign during the quarter and currently stands at 620,000 square feet. As a reminder, our late-stage pipeline is still almost double what it was in the beginning of 2023. We are also pleased with the momentum in our medium and early-stage pipelines, with overall total activity up relative to last quarter.
One particularly important area of positive leasing momentum is at our Neuhoff mixed-use development in Nashville. This quarter, we completed our first 2 office leases at Neuhoff, totaling just under 50,000 square feet. Bringing the office and retail component of this project to 11% lease. The bulk of this newly lease space is expected to commence in mid-2024, although about 7,000 square feet should commence in the fourth quarter of this year. We remain pleased with our growing list of prospective office and retail customers with over 150,000 square feet of active proposals outstanding as of today. We are optimistic that we will convert several of those through lease negotiations in the weeks ahead. The creative and unique nature of this project is coming into full view and it is resonating with prospects.
As we look across the Sun Belt, we continue to see firsthand in our portfolio at the highest quality office buildings that provide its occupants with a superior work lifestyle continue to strongly outperform the broader market. Cushman & Wakefield has recently noted vacancy in office assets built in the past 10 years in prime locations with plentiful amenities and services as more than 500 basis points below the overall average and asking rents are 34% higher. While interest rate hikes and economic uncertainty persists, our Sun Belt markets should continue to outperform.
For instance, according to Oxford Economics, Austin ranks #1 nationally for projected job growth through 2027. In our Austin portfolio, we signed 8 leases totaling 161,000 square feet this quarter, including the sizable technology company expansion in the domain that I mentioned earlier. I would note that our late-stage pipeline in Austin has moderated over the course of the summer. At the end of the second quarter, our Austin portfolio was 94.4% leased, with relatively little availability to lease and no material near-term expirations and enjoys 5.9 years of weighted average lease term. Our Austin portfolio is very well positioned to weather any near-term cyclical challenges.
In Atlanta, leasing activity remains resilient with JLL reporting the quarterly leasing activity remained positive at over 1.3 million square feet with the average deal size, 23% larger than in the first quarter. Also notable, was that while net absorption in the Atlanta office market was negative this quarter, a sizable portion of it was driven by AT&T's known move-out at the Lenox Park campus in Buckhead. However, AT&T has since re-leased a 120,000 square foot building at that project as they implement new return to office policies. In our Atlanta portfolio, we signed 21 leases totaling 147,000 square feet this quarter with most of the activity in Midtown and Buckhead.
Our recently redeveloped Promenade campus in Midtown, which includes Promenade Tower and Promenade Central, continue to see outsized activity with over 180,000 square feet of leases signed so far this year. As a quick reminder, the renewal of our largest 2023 expiry customer, aside from SVB and about 120,000 square feet in Buckhead has still not been signed, but it does remain on track.
As we look forward, we are encouraged by our second quarter results amid an uncertain economic environment. It remains clear that regardless of which data or methods you use to track physical utilization, more people are back in the office more often. Cousins remains well positioned to outperform going forward with exceptionally high-quality properties in the best Sun Belt markets, a strong and diversified customer base and an extremely attractive near-term lease expiration profile with only 18.6% of annual contractual rent expiring through the end of 2025.
Before handing it off to Gregg, I want to thank our best-in-class operations team for all they do. The team's level of excellence and dedication to our customers is evident across the entire Cousins portfolio. Gregg?
Gregg D. Adzema
Thanks, Richard. Good morning, everyone. I'll begin my remarks by providing a brief overview of our results as well as some details on our same property performance and our parking revenues. Then I'll move on to our capital markets activity and our development pipeline, followed by a quick discussion of our balance sheet, for closing my remarks with an update on our earnings outlook for the balance of 2023.
Overall, as Colin stated upfront, our second quarter earnings were solid, and the operating economics behind them were encouraging. Second-generation cash leasing spreads were positive for the 34th straight quarter. Leasing velocity was strong and same property year-over-year cash NOI increased. There were 2 unusual items during the second quarter that I'd like to highlight for just a minute.
First, we recognized $6.6 million in termination fees during the quarter. 2 customers LiveRamp at our 100 Mill property in Tempe and Meta at our Domain 8 property in Austin, comprised over 95% of these fees. Both move-outs were initiated by us and both have been fully backfilled at equal or higher rents and extended lease terms. Both transactions were also previously disclosed. I talked about the LiveRamp fee on last quarter's earnings call and we provided details on the Meta fee in the 8-K we filed in early June.
Second, as Richard discussed earlier, in connection with their ongoing bankruptcy case, SVB Financial has rejected their lease at our Hayden Ferry property with an effective date no later than September 30th. As a result, we recognized a $1.6 million reduction in revenues during the quarter related to the write-down of net assets associated with this lease, primarily straight-line rent.
Focusing on same-property performance for a moment GAAP NOI increased 6.3% and cash NOI increased 3.7% during the second quarter compared to last year. This continues a string of improvements that began in early 2022, with the most recent quarterly gains, largely driven by increased occupancy at our Buckhead Plaza, Colorado Tower and Domain 2 properties. As Richard also discussed, we're going to take Hayden Ferry 1 off-line and reposition it once SVB moves out. As a result, we have removed Hayden Ferry 1 from our same property pool. This building is part of a 3-building campus, and we have left in both of the other Hayden Ferry properties. If we had included Hayden Ferry 1 in our second quarter same-property results, year-over-year cash NOI growth would have increased from 3.7% to 3.8%.
Among our markets, Austin remains the strongest based on same property performance. Over the last 5 quarters, same property cash NOI growth has averaged 8.5% in Austin, and the trend is moving upward. First quarter growth was 9.9% and second quarter growth was 11.8%. As Colin mentioned earlier, physical utilization at our properties has continued to increase, and our parking revenues have grown along with it. Parking revenues during the second quarter increased over 6% compared to the prior quarter, and were the highest they have been since the first quarter of 2020, just prior to the COVID pandemic.
Turning to our capital markets activity. We completed 2 previously announced transactions during the second quarter. First, we closed the refinancing of our medical offices at Emory Hospital property in Atlanta, which is owned in a 50-50 joint venture with Emory University. The new mortgage matures in June 2032, and has a fixed interest rate of 4.8%. Second, we entered into a floating to fixed interest rate swap on $200 million of our outstanding $400 million term loan that matures in March of 2025. Fixing the underlying daily SOFR rate at approximately 4.3% through maturity.
Looking at our development efforts, our current development pipeline is comprised of a 50% interest in Neuhoff in Nashville and a 100% interest for Domain 9 in Austin. Our share of the remaining development costs is $107 million, $72 million of which will be funded by our Neuhoff construction loan leaving only $35 million to be funded by our operating cash flow as these projects are completed.
Looking at our balance sheet. Net debt-to-EBITDA is an industry-leading 4.9x, our liquidity position remains strong with only $148.5 million outstanding on our $1 billion unsecured credit facility, and our debt maturity schedule is well laddered with no remaining maturities in 2023. Looking at 2024 and beyond, our debt maturity schedules 3 pieces of debt with extension options. First, we have a $350 million term loan with an initial maturity in August 2024. It has 4, 6-month extension options. Second, we have a $400 million term loan with an initial maturity in March of 2025 that also has 4, 6-month extension options. And third, our Neuhoff construction loan has an initial maturity in September of '25 and has a single 1-year extension option. When taking all these 3 extensions into account, our next significant debt maturity is not until July of 2025. Our debt maturity schedule is laid out, including all extension options on Page 28 of our financial supplement.
I'll close by updating our '23 earnings guidance. We currently anticipate full year 2023 FFO between $2.57 and $2.65 per share with a midpoint of $2.61 per share. This is up from our previous midpoint of $2.60 per share and represents the second quarter in a row that we've increased the midpoint of our guidance. No property acquisitions, property dispositions or development starts are included in this guidance. The increase is primarily driven by 2 items. First, as I outlined earlier in the call, SVB Financial has formally rejected their lease at Hayden Ferry. Their rejection has an effective date of no later than September 30th. As of today, SVB is current on the financial obligations of their lease, they have paid July rent, and they paid August rent in full, and indications are they will pay September rent as well. This is the assumption we have used in our earnings guidance, and it is an improvement over our previous assumption of a June 30th effective date.
As before, our earnings guidance does not include payment of any portion of our unsecured claim in the SVB Financial bankruptcy case, which we currently estimate to be approximately $9.3 million, up from our earlier estimate of $8.8 million. The amount and timing of recovery against this claim is not yet known, but unsecured SVB Financial bonds are currently trading between $0.70 and $0.75 on the dollar. So we anticipate there will be significant value in this claim.
The second component of our increased guidance is higher than budgeted parking income driven by a continued return to the office. Parking revenues have consistently exceeded our expectations in 2023, and they remain a reliable indicator of the physical utilization within our portfolio. Bottom line, our second quarter results were solid. Our strong leverage and liquidity position remains intact, and we're raising FFO guidance.
With that, I'll turn it back over to the operator.
Question and Answer Session
Operator
(Operator Instructions) Our question will be from Blaine Heck, Wells Fargo.
Blaine Matthew Heck
So Colin, your commentary over the past few quarters is focused on building up dry powder for investment opportunities that you expect to emerge. Can you just -- can you provide some more color on whether deals are emerging that you find interesting? How you think the current stress on the market is going to play out and maybe where are the best opportunities are likely to emerge?
Michael Colin Connolly
Blaine. It's -- we continue to highlight, we do have significant dry powder and leasing capacity to pursue new investment opportunities. As I mentioned in my prepared remarks, while I'd say a significant repricing has played out in the public markets and perhaps fit too much. On the private market, that process is still playing out and still, there's downward pressure on repricing, and we're just -- we're finding that private sellers are not yet willing to accept -- probably the -- where market clearing pricing is today, unless they absolutely have to, but we have not seen that pressure fully applied. But as interest rates continue to stay higher for longer, we do think in time that will force some opportunities, hopefully, in the not-too-distant future. But there's a bit outspread today.
I think in the interim, perhaps where we might see some interesting opportunities is on the debt side, whether that's in mortgage debt or preferred equity, I think there, the bid-ask spread is a bit less relevant. And we are starting to see some situations there as owners or developers of new construction, try to refinance their existing construction loans. So we're hard at work. Kennedy Hicks, our Chief Investment Officer and her team are hard at work and in a lot of conversations. But as I said, we continue to be patient and thoughtful and wait for the right pitch, but we'll be ready.
Blaine Matthew Heck
Great. That's really helpful. And just related to that, there's been some speculation, I guess, can you talk about your appetite for investing outside of your traditional Sun Belt markets and specifically touch on whether anything on the West Coast would be attractive and whether a move like that or -- to any additional market for that matter, would need to be done with a larger investment in a portfolio? Or would you consider single assets?
Michael Colin Connolly
Look, again, at the moment, we do not feel opportunity constrained at all in our existing Sun Belt markets. And the growth profile in our existing markets, the migration trends have all continued to provide positive tailwinds for Cousins. And again, I think we're going to see some meaningful opportunities. I do think there's a certain sense that quality is incredibly important to the future of office. We're certainly mindful perhaps at some of the repricing that has taken place outside of our existing markets. We certainly pay attention to that and evaluate. But again, I think the current priority for us is to focus on our Sun Belt markets where we've got great platforms and a real competitive advantage. But we're opportunistic. And so as I said, if there's instances -- where kind of the intersection of price and quality, intersects. We'll look at those for shareholders and try to make decisions that ultimately drive value for our investor base.
Operator
Question will be from Nick Thillman of Baird.
Nicholas Patrick Thillman
Thanks for the update on the late-stage pipeline. Just wondering if we could get a little bit more color on just the breakout between new and expansion leases and renewals and then kind of where the markets -- where you're seeing the most activity?
Richard G. Hickson
Sure, Nick. This is Richard. We do have more activity on the renewal side in the late-stage pipeline than we had in our completed activity this quarter. But frankly, that's a result of being really focused on taking care of expirations that may not be directly in front of us and being proactive. But again that new expansion activity is still encouraging.
In terms of the late-stage pipeline, kind of breakout among the markets, we're seeing continued strength in Atlanta. It's been a very strong market for us over the -- a number of quarters from a volume perspective. And interestingly, Tampa and Phoenix are very active.
Nicholas Patrick Thillman
That's helpful. And then maybe just on Neuhoff, sounds like a little bit pickup in demand there of like the 150,000 square feet of active proposals, what's like the average space size people are looking there?
Richard G. Hickson
I'd say it's a little around probably 25,000 square feet on average, but it's fairly consistent with what we completed today.
Nicholas Patrick Thillman
And then just a quick cleanup question. Of the 700,000 square feet expiring, that's inclusive of the SVB termination, correct?
Richard G. Hickson
Yes. For 2023, what we're showing includes SVB.
Operator
Next question will be from Anthony Powell of Barclays.
Anthony Franklin Powell
Question on AI and office leasing. There's been some speculation that we're starting to see some metric capital on AI-related leasing in San Francisco? Is that something you've seen in Austin or do you expect that in Austin going forward?
Michael Colin Connolly
I think in time, you'll see -- AI is a powerful part of the economy that many expect. I think in time, you'll see that activity play out in strong tech hubs like Atlanta and like Austin. I think in the -- here and now, I think the predominance of that activity is likely in San Francisco. But again, like the technology sector has migrated over time, we would anticipate in the future to see some of that demand.
Anthony Franklin Powell
And maybe on parking fees. How the actual key levels change over the pandemic? And is there an opportunity to maybe increase those fees as people start becoming back to work more often?
Michael Colin Connolly
Could you repeat the question? I had trouble hearing.
Anthony Franklin Powell
Yes. Just on parking fees, I know the parking revenue was a source of upside in the quarter. I'm just curious about the actual fees and if you can increase those over time? As more people come back to work.
Richard G. Hickson
That's a great question. The answer is yes. We have been able to and have been proactive about raising where we can, parking rates through the pandemic. It's been -- I wouldn't call it broad-based, but there have been opportunities. At the same time, we do have some constraints in our leases as to how much we can raise them in any given year or how often, so a lot of times those rate increases will only apply to transient parking generally.
Operator
Next question from John Kim, BMO Capital Markets.
Regan Sweeney
This is Regan Sweeney on for John. You highlighted some strong leasing in Atlanta alternatives in this market. There have been some reports related to NCR Corp lifting its space for sublease. Can you just comment on if you're working with them on marketing this space and then the ultimate potential mark-to-market of their current space?
Michael Colin Connolly
It's Colin. NCR is in the process of splitting the company into 2 separately publicly traded companies, one a software company and one kind of the ATM and hardware components. So as a part of that, corporate restructuring, they have put on the sublease market, the smaller of the 2 buildings in that Midtown Atlanta urban campus and that's approximately 250,000 square feet. We've had active discussions with NCR as they attempt to move forward with that sublease. We do have quite a bit of term left on that lease. And so if there's an opportunity for them to bring in a subtenant and if they were interested in going direct, if the economics work for us and our shareholders, we absolutely consider that and to work with NCR in that future prospect.
But the economics would again have to make sense. We do believe that, that rent is below market today. And so again, I think it's an opportunity. And over time, we think it could be a great outcome for our shareholders in the sense of -- similar to what we've done at 300 Colorado and Austin, we can effectively multi-tenant a really terrific Trophy building in Midtown while we continue to collect rent from NCR.
Regan Sweeney
I appreciate the color. And then just one follow-up question on Neuhoff. Has there been any impact to leasing there due to Oracle's delayed HQ opening? And then is there any expected shift in the tenant pipes going forward with what you're currently trading paper with?
Michael Colin Connolly
The really -- the Oracle's delay in building out their campus, again, that's across the river from us and would really be kind of new jobs international is given kind of coming out of the pandemic, that has slowed a bit. They are still planning to move forward with building the bridge across the river from their project to Neuhoff. So it has not impacted us at all. Again, that's going to be 100% user owner-occupied building with Oracle. But we continue to see really positive demand at Neuhoff. Nashville is a market that continues to benefit from in migration and Neuhoff is by -- without question, the most differentiated product that exists in Nashville today.
Operator
Our next question will be from Jay Poskitt of Evercore.
Jay Poskitt
I was wondering if you could just provide a little bit more of a breakdown just in tenant type and tenant size, just in the leasing pipeline and kind of how that breakdown has changed throughout the year?
Richard G. Hickson
Sure. This is Richard. Honestly I don't see that this changed all that much. Again, I would comment -- similar to what I said earlier. We do have some renewal activity in our late-stage pipeline that is a little bit larger as we look forward to some of our expirations next year and even a little bit further out. But generally speaking, I think we've been fairly consistent on average transaction size.
Jay Poskitt
Okay. That's great. And then just on the expiration front, do you have any update on kind of you have a larger lease expiration, I believe, in the [fourth quarter] do you have any update on that as well?
Richard G. Hickson
In terms of larger lease expirations, again, we have SVB, which we've already covered is now a new 2023 expiration. I gave a quick update on the other expiration that has been pending and in lease negotiations. Again, that's on track here in Atlanta. And then really, we don't have any other large expirations until the latter half of 2024. We have about 100,000 square foot customer at Domain 4 in Austin that expires in August of next year. We're actually having dialogue right now with them.
But I think we've mentioned in the past, that property is a low rise, it's creative office, really good product and an interesting product for the right user. But could be more compelling for us over time as a development site. So time will tell what we end up doing there, but a full renewal may not necessarily be the right option for Cousins. We also have 113,000 square foot customer expiring at the very end of '24 at Hayden Ferry 2 in Phoenix, and we are in advanced discussions with them right now about a partial renewal.
Operator
Next question will be from Camille Bonnel, Bank of America.
Camille Bonnel
Hello. In our Austin channel checks. We've been hearing that the tech is not very active, and there are really no large tenants in the market. Yet as you highlighted at Domain 8 and also the news of TikTok taking back sublease space in 1 of your buildings. I was just hoping to get a little bit more color on the Austin markets given your comments of the moderating demand. Do you think this moderation is driven by a summer lull or are you expecting it to continue throughout the year?
Michael Colin Connolly
Camille. Broadly speaking, we've seen a bit of a pause in tech leasing not just in Austin, but really around the country. And that shouldn't really come as a surprise as you look at kind of the latter half of last year and into this year, where a lot of those businesses were retrenching, [preaching] years of efficiency. And as a part of that, typically, real estate decisions get delayed. Though over the course of this year, you started to see some of those businesses pick back up. You're seeing their equity valuations do a whole lot better. And we are starting to see some signs of tech kind of reemerging.
You touched on the 100,000 square foot lease that we did with one of the largest tech companies in the world at Domain 8, and we're seeing kind of other smaller examples, full floor of tech examples of large tech users across our portfolio, in particular here in Atlanta. As we look at Austin over the next several years, demand is over the medium and long term is really never something that we worry too much about in Austin. It will continue to attract businesses from different parts of the country, their economic development arm is hard at work, and there are some several potential large relocations, circling, Austin, so any slowdown in demand, I think, will be short-lived in Austin.
The challenge for the city over the next year or 2 will just be -- there's a good amount of supply. Perhaps folks got out in front of themselves. But I think as demand returns, we're confident that, that will rebalance and fill up. So for us, as Richard pointed out, our portfolio is 90% -- almost 94.5% leased, with just about 6 years of weighted average lease term and really other than the 1 customer out of the Domain that really potentially is in a land site. We have no material expirations over the next couple of years. So if the market softens, we plan it candidly beyond the sideline.
Camille Bonnel
Appreciate the color. And you've talked about driving occupancy as the key priority right now, but could you expand on the rent change dynamics you're seeing and put that into perspective with what's going on with market rent?
Michael Colin Connolly
Well, I'd say -- again, as Richard pointed out earlier, when you look at -- you look at our net effective rents over the last year compared to 2019, our overall net effective rents continue to track meaningfully upwards. At this point, I'd say, right, the market is very much bifurcated. And if you're in traditional office you're very much an order taker within our portfolio, while we've seen the leasing costs go up, both in the form of -- perhaps a slight uptick in free rent and a larger uptick in tenant improvement allowances, we've been able to more than offset that with driving rental rates. So as we look forward, we're optimistic that we can continue to maintain lease rates.
Operator
Next question will be from (inaudible), Mizuho.
Unidentified Analyst
I was just wondering, can you share more examples of tenants that need more space as employees return to work?
Michael Colin Connolly
So it is -- again, I think we're in conversations with folks. And as I mentioned earlier, there's several existing tech companies within our portfolio that perhaps have 25,000 or 50,000 square feet that over the last quarter or so have inquired about additional full-floor leasing activity. And so again, I think that's been a very positive sign for us. But you are starting to, again, see some larger users out there, not just in our portfolio, but across our markets and beyond.
And the AT&T coming back in for a large space that they had recently given up. We've seen some reports out of Snap on the West Coast, we've given back space and now is re-leasing space. So it's still in the early part, early innings of that, but it's great to see some of that activity taking place. It's not just tech. We've seen some professional services firms that have downsized and now, again, back in the market, accounting firms, law firms, taking incremental space to grow their footprints.
Unidentified Analyst
Great. And just a second one for me. You mentioned you're expecting to increase occupancy in 2024. I was just wondering if you can provide some more color on what gives you confidence that, that will be the case?
Michael Colin Connolly
Well, it's really a function of -- positive kind of new leasing momentum that has really developed here in the second half of the year, combined with low upcoming lease expirations. And so we're really well positioned with the portfolio. Now bear in mind as we do new leasing activity, there's always a lag anywhere from 8 to 12 months, between signing that lease and getting the customer space built out, occupied and rent commencing -- kept commencing, and so that will ultimately dictate the extent in which we can drive occupancy in 2024. But again, if you pull out our redevelopment projects and new development projects -- the -- kind of the supply and demand of our space is in a good spot.
Operator
Move on to Peter Abramowitz, Jefferies for the next question.
Peter Dylan Abramowitz
Colin spoke earlier about sort of a lack of adjustment and seller expectations that are really only meeting market clearing prices, if they absolutely have to. I guess could you talk about that dynamic? It seems like especially from private equity with the amount of redemptions they faced, they have had to sell and come meet market expectations in other property types at least. So could you talk about that on the office side, if you're seeing any kind of signs of better if that's something you expect to see?
Michael Colin Connolly
Yes. Again, you've seen private equity, as you mentioned, as they've got redemption selling kind of other -- property types where perhaps the pricing hasn't faced as much of a repricing, and so I think there's been more of a reluctance queue to sell down office exposure at market clearing prices. Again, I think there's somewhat of an expectation in the private market that perhaps rates come back down and that cap rates readjust that would certainly should show itself in the public market pricing as well. So it -- if you gone through previous cycles, this kind of delay, this bid-ask spread kind of takes a little longer from the activity resume. It really is not surprising, and it's very consistent with past cycles.
But ultimately, as you look at kind of where rates are today and pretty big wall of loan maturities that's really finally starting to rear itself here in the second half of '23 and '24. We do think that, that's going to -- begin to force action -- these assets need capital. They need new capital for leasing costs, and we do think that, that will start to drive some transaction activity at -- hopefully attractive market clearing prices.
Peter Dylan Abramowitz
Okay. Got it. And then one other one. So since your last call, I think there is probably -- there's a lot more confidence in the Fed's ability to engineer a soft landing here, certainly reflected in the equity markets. Any sense of -- has that impacted tenant psychology in your conversations around leasing? Does it seem that that's something that's making them -- people better about committing to leases long term?
Michael Colin Connolly
Yes. Again, I think our experience in our lifestyle portfolio is throughout the -- even the pandemic up to now, our -- the term of our leases have stayed pretty steady on average between, call it, 6.5 to 7 years on average. Our customers and our quality of properties have been pretty confident to make long-term decisions. I do think there are -- there is more confidence in companies and their underlying business to start to make decisions.
But I'd say the biggest driver for us has been really kind of the return to work initiative and more of our customers utilizing space. And I think -- CFO's have a whole lot more confidence allocating capital into more real estate spend when they've got confidence that the employees are going to use the space. And so that's really been positive. And as I think about our business, if it was a year ago, I was up at night worrying about both the secular and the cyclical. I'd say today at night, I'm just really more worried about the cyclical. And I'd say that's a much better place to be and again, the quality of our balance sheet and the portfolio gives us a lot of confidence, as I mentioned to thrive during all parts of the cycle.
Operator
The next question will be from Dylan Burzinski of Green Street.
Dylan Burzinski
I guess just going back to potential acquisitions and whatnot, I'm realizing that still in the early innings and you guys (inaudible). But just from markets and whatnot, are there any markets within the portfolio today that you're more interested in growing in versus others?
Michael Colin Connolly
We love all our markets the same. But I think as we look at the current kind of portfolio construction that has pretty large exposure in Atlanta and Austin, we'd love to find opportunities to allocate capital to some other really strong markets, where perhaps say they have less exposure, and that certainly look at Dallas, Charlotte, Nashville, we'd love to grow our presence in those markets. But at the same time, given how strong our operating platforms are in Atlanta and Austin, it's great opportunities come along there. We will absolutely invest in them. But in time, we would like to see a path to increasing exposure in some of those other markets.
Dylan Burzinski
And then just going back to some of the comments made regarding office utilization. Are you guys able to share sort of where utilization is at today or maybe over the last several weeks versus where it was at in the portfolio at the start of the year?
Michael Colin Connolly
Yes it was -- again utilization, I think is -- to be clear, it's a bit of an imperfect science. And it's one that -- I think a lot of folks rely on the casual data. I don't know that we've got a ton of confidence in that data or perhaps that, that data is reflective of not necessarily the quality of assets that we own or some of our peers own.
But we do kind of exhausted physical counts as best we can, parking garages, discussing kind of metrics with our customers. We've even had some discussions with some of these companies that use cellular data. And I'd say at -- in all cases, really, we're probably around 70%-ish today. It's kind of where those numbers have come back. And I think as we think about adjusting that for kind of the Friday exception, as I mentioned earlier, we think we're making great progress, and that was probably closer to 60% a year ago.
Operator
Next question will be from Andrew Rosivach of Wolfe Research.
Unidentified Analyst
This is (inaudible) for Andrew. Just one quick question. I don't know if you could provide any guidance around the amount you expect to spend on the redevelopment of Hayden Ferry 1?
Michael Colin Connolly
Yes. It is -- we are still in process of finalizing our budget there. We hope to have that completed by the fall and ready to move forward with that project. And again, as we look at it, I'd say the overall priority in that project, it's going to be Hayden Ferry 1. But while we're at it, we're going to go ahead and do work across the entire campus. And as Richard said, I think we have a great opportunity to differentiate Hayden Ferry with our redevelopment work as the leading property in all of Phoenix and we've had great success doing that at Cousins.
John McCall and our development team do excellent work. I think many of you all have seen what we've done at Buckhead Plaza and the Promenade and we'll do something along those lines there. I'd say, excluding anything that's going to be kind of revenue-producing historically, we spend anywhere from $30 to $40 a foot on those type of projects. And I -- based on kind of preliminary numbers, I would expect it to be somewhere in that neighborhood when we finalize it.
Operator
This concludes our question-and-answer session. Now I'd like to turn the conference back over to Mr. Colin Connolly for closing remarks.
Michael Colin Connolly
Thank you all for joining us today. We appreciate your time and continued interest in Cousins. If you have any follow-up questions, please feel free to reach out to Gregg and Roni. We look forward to hopefully seeing you all at some of the conferences as we head into September and October. Have a great day.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
