Q2 2025 Piedmont Realty Trust Inc Earnings Call
Greetings and welcome to the Piedmont realy trust Incorporated, second quarter 2025 earnings call.
At this time, all participants are on a listen-only mode. And a question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
And please note this conference is being recorded.
I will now turn the conference over to your host, Laura Moon, Chief Accounting Officer for Piedmont Realty Trust. Laura, the floor is yours.
Thank you, operator, and good morning everyone. We appreciate you joining us today for Pet's second quarter 2025 earnings conference. Call last night, we filed our 10 q and an AK that includes our earnings release and an audited. Supplemental information for the second quarter of 2025 that is available for your review. On our website at pedmont read.com under the investor relations section.
During this call, you will hear from senior officers at Piedmont.
Their prepared remarks, followed by answers to your questions. We'll contain four looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements address matters which are subject to risks and uncertainties; therefore, actual results may differ from those we anticipate and discuss today. The risks and uncertainties of these forward-looking statements are discussed in our supplemental information as well as our SEC filings.
For me, also on today's call representatives of the company May refer to certain non-gaap Financial measures such as ffo core, Pho afo and same store. Noi, the definitions and reconciliations of these non-gaap measures are contained. In the earnings release and supplemental financial information which were filed last night.
At this time, our president and chief executive officer. Brent Smith will provide some opening comments regarding second quarter, 2025 operating results, Brent
Thanks Laura.
Good morning, and thank you for joining us today. As we review our second quarter 2025 results.
In addition to Laura Moon, on the line with me this morning are George Wells, our Chief Operating Officer; Chris Coleman, our EVP of Investments; and Sherry Rexroad, our Chief Financial Officer. We also have the usual full complement of our management team available to answer your questions.
Before I delve into the quarter, I want to highlight 3 macro trends that bolsters growth for Piedmont in the near term.
1, the flight to Quality means that demand for the best Office Buildings is accelerating and pedmont is well, positioned having invested to create a modern work environment at every asset.
Two large tenants are making more leasing commitments, driving meaningful absorption at the top end of the market.
3 given the lack of new office construction for the foreseeable future. Today's differentiated buildings have a long runway for Meaningful rental rate growth.
Now, getting back to the quarter, we were very pleased with our leasing success, totaling, 712,000 square feet, and bringing total year-to-date leasing to over 1 million square feet.
Importantly, approximately 2/3 of our Q2 activity related to new tenant. Leases marking, the most new tenant leasing. We've executed in a single quarter since 2018.
Further the new activity included numerous full floor or greater leases which will meaningfully backfill several blocks of space in the portfolio including at 3 Galleria Tower in Dallas and are currently out of service. Minneapolis portfolio as George will talk about more in a moment.
Our leasing success during the second quarter pushed our inservice lease percentage as of the end of the quarter up 140 basis points year-over-year to 88.7%,
Tracking, well, to our year-end goal of 89 to 90% least.
While not reflected in our lease percentage are out of service portfolio, comprised of 2 projects in Minneapolis and 1 in Orlando, is also performing extremely well, as differentiated amenitiz, workplaces continue to Garner, the majority of leasing in the market.
At the end of the second quarter, the out of service portfolio, stood at over 30% least but is approaching 60% least on the activity in July.
We anticipate these assets will reach stabilization by the end of next year.
In addition to the overall volume for the second quarter, leasing also resulted in favorable economics, with rental rates for space vacant less than a year reflecting just over 7%, and almost 14% roll-ups on a cash and accrual basis, respectively.
As JL Research noted this quarter, rents for trophy offices and new construction are reaching new highs.
Asking rents for developments have grown by 27% year-over-year and stand at 92 a square foot.
The highest on record by a substantial margin.
We believe the underlying effects of high interest rates cumulative inflation on labor and materials and potential tariff impacts will continue to diminish new office supply and push construction costs higher and by extension, the required rents for new buildings providing Piedmont with more Runway to materially increase, our rental rates across the portfolio.
Leasing momentum remains strong, including over 300,000 square feet of leases signed during July.
And the pipeline remains robust with another approximately 300,000 square feet. Currently in late stage documentation,
Demand for our buildings from Full floor and larger. Tenants is particularly evident in Minneapolis and our Sunbelt markets with 10 transactions for a full floor or greater increasing. Our backlog of annual revenue from Lisa's yet to commence or in their free rent, period to 71 million with the gap between lease percentage and economic lease percentage or cash paying tenants.
Remaining at a historically wide 10%.
Into this Revenue to commence by the end of 2026.
From a macro level JL research reports that although overall volume for the second quarter was essentially flat as compared to the first.
Active Space requirements. Grew 5.8%
Reflecting the highest level of demand since 2021.
And National occupancy held relatively firm. During the second quarter is a modest amount of negative absorption was recorded.
However, in contrast to pain, we observed positive absorption in four of our operating markets.
To my point. Earlier on construction costs, overall inventory remained flat in the second quarter with only 1 million square feet of new projects. Breaking ground across the country and projected, conversions, and demolitions expected to exceed new. Deliveries this year.
Given all of this activity, we are bullish about our leasing prospects. As I noted before, we are increasing our annual leasing guidance for the second time this year to a range of 2.2 to 2.4 million square feet, which reflects an increase of more than 800,000 square feet compared to our original 2025 guidance established at the beginning of the year.
It is important to note, however, that the majority of this new leasing is expected to benefit earnings in 2026 and beyond.
Sherry will touch on our bond repurchases that occurred during the quarter in her prepared remarks. But before I hand over the call to Jorge, I want to quickly call your attention to our recent rebranding, including a new website.
There are a lot of exciting things happening at pedmont and I hope you take a moment to examine for yourself. The unique placemaking environments we've cultivated at each of our assets.
With that, I now hand the call over to George. We'll go into more details on the leasing pipeline and second quarter operational results.
Thanks, Brent. Our local operational teams were exceptionally productive this summer, capitalizing on elevated demand for p months. Well-located, hospitality-inspired workplace environments.
During the second quarter, we completed 57 Leafs transactions for 700,000 square feet, well above our historical average.
New Deal activity, accounted for the bulk of that volume, reaching 470,000 square feet, a record amount. Not seen since 2018 as recently highlighted we've seen a spike in large users with 7 full floor or larger New Deals executed this quarter compared to 1 or 2 per quarter historically
A third of those new leases signed will generate gaap Revenue in the second half of 2025 with the remaining 2/3, positively impacting, the first half of 2026. Our weighted average lease term for New Deal activities stayed consistent at 10 years, expansions, exceeded contractions cumulatively over the past 4 quarters.
Our trailing 12-month retention rate came in at 78%. As Brent mentioned lease, economics, were solid with a 7.3% and 13.6% roll up or increase in rents for the quarter on the cash and recruit basis respectively.
Atlanta, Dallas, and Minneapolis each contributed meaningfully towards the positive roll-up numbers, with an overall weighted average starting cash of $43 per square foot.
We anticipate further rental rate growth as our portfolio approach is stabilization or crosses into the low 90s. But also from a Confluence of 2 Market factors,
Vacancy is a top end of the market is quite low and rates are Justified, new construction or reaching new records.
leasing Capital spend with slightly up at $6.73 per square foot per year, this quarter, when compared to our trailing 12 months,
Reflecting the fact that our quarterly Vol was more heavily weighted towards new leasing this quarter.
Net effect of rents came in at approximately $20.78 per square foot.
And sublett availability continues to hover around 5% with no near-term expirations for those spaces over the next 4 quarters.
Dallas was our most productive market during the quarter, closing on 15 deals for over 200,000 square feet, or a third of the company's overall volume, with new transactions accounting for 90% of that volume. Most notable was landing two large global companies for a combined 130,000 square feet at 3 Galleria Tower, which now stands at 94% leased and is asking $55 per square foot — the highest rents in its submarket.
24 or larger headquartered transactions at Meridian.
The Piedmont Redevelopment Strategy underway at Meridian and Excelsior is generating interest, with another 180,000 square feet executed in July or in a legal stage.
Asking rates that now approaching forty dollars per square foot up. 10% from the pre- Redevelopment, phase from just a couple of months ago and the highest within its submarkets
Orlando was quite active as well with 8 deals for 175,000 square feet. The key story here was retaining 125,000 square feet of 2026, expirations and achieving record, high rental rates for both our downtown and Suburban assets. I would like to thank our Orlando team for winning bulma's renovated. Toby award at the international level quite a Herculean feat.
Another International booming, in the 250 to 500000 square foot category, was awarded to our 25 mile road acid in Boston. Congratulations to both of our teams.
Atlanta wrecked up, 19 deals for 110,000 square feet, including new activity in all 3 of our operating submarkets.
Central perimeter fundamentals, where our Glenridge, Highlands and 1155 assets, set are improving as several obsolete. Offices buildings have been demolished sublet availability, has declined and recent out of-state corporate relocations like Mercedes StubHub and tried to have reinforced the attractiveness of this most centrally located submarket in the city.
Coming back to the overall portfolio and to reiterate, what Brent said we are bullish about our near-term. Leasing prospects, our leasing pipeline is strong with over. 300,000 square feet in late stage activity, including several single floor, or larger deals, and mostly for vacantly current space.
Outstanding proposals stand at a healthy, 2.2 million square feet for both our operating and out of service portfolios. Our supplemental report shows a manageable 4.2% of our total square footage expiring in 2025. Assuming a stable, macro environment. We remain comfortable in a previously released, year-end lease, percentage guidance of 89 to 90% for our operating portfolio.
Our out-of-service portfolio, which is projected to meaningfully contribute towards 2026 FFO growth, saw at least a percentage increase of 220 basis points in the second quarter. Based on what we're seeing in your early and late stage activity, we project this portfolio to reach 80% by year-end.
I'll now turn the call over to Chris Coleman for any comments on investment activity. Chris,
Thanks George. I'll just provide a brief update.
The transactions Market continues to be challenging amid ongoing economic uncertainty.
Despite the difficult backdrop, we remain in dialogue with potential buyers of select non-core assets and continue to see a modest increase in groups. We are evaluating the office sector for investment.
as we alluded to on last quarter's call, we did dispose of 1 small non-core project up in Suburban Boston during the second quarter which resulted in Gross proceeds of approximately 30 million
This asset located in Boxborough has been on our disposition list for some time. And the decision to sell, it is entirely consistent with the portfolio of pruning. We have completed over the past couple of years.
We will continue to do so and we do have a few other small Assets in the market, but it is too early to comment on specifics or speculate on timing.
On the Acquisitions front. We remain highly engaged in each of our key markets and continue to think creatively about ways to leverage our operating platform while conserving our capital resources.
With that, I'll pass it over to Sherry to cover our financial results.
Thank you, Chris. While we will be discussing some of this quarter's financial highlights today, please review the earnings release and accompanying supplemental financial information, which were filed yesterday for more complete details.
Core FFO per diluted share for the second quarter of 2025 was 36 cents versus 37 cents per diluted share for the second quarter of 2024, with the penny decrease attributable to higher net interest expense as a result of refinancing activity completed over the past 12 months.
Growth and operations due to higher economic occupancy and rental. Rate growth was offset by the sale of 3, non-strategic projects and downtown associated with the expiration of certain leases over the last 12 months.
Afo generated during the second quarter of 2025 was approximately 16 million.
Turning to the balance sheet. During the second quarter, we utilized the proceeds from the small disposition that Chris mentioned as well as our line of credit to repurchase approximately 68 million of our 9 and 1/4 bonds.
As a result of these repurchases, we recognized a 7.5 million loss on early extinguishment of debt which is included in our second quarter results.
However, the repurchase is expected to result in total interest savings of $7.5 million, or $2.5 million on an annual basis, over the next 3 years.
While this is certainly an opportunistic strategy and highly dependent on market conditions, we will continue to think creatively about ways to refinance these higher interest rate bonds that are currently scheduled to mature in 2028.
As we've highlighted before, we currently have no final debt maturities until 2028 and approximately 450 million of availability under our revolving line of credit.
Based on the current forward yield curve. We expect all of our unsecured debt maturing. For the remainder of, this decade will be refinanced at lower interest rates and thus be a Tailwind to our ffo per share growth.
At this time, I'd like to affirm our 2025 annual core FFO guidance and the range of $1.38 to $1.44 per diluted share, with no material changes to our previously published assumptions.
Other than the increase to our anticipated annual executed, leasing goal to 2.2 to 2.4 million. The Brent mentions
Please refer to page 26 of the supplemental information filed last night for the details of major leases that have not yet commenced or are currently in abatement.
As of June 30th 2025 the company had approximately 2 million square feet of executed leases yet to commence or under abatement representing approximately 71 million of future additional annual cash rent, which consists of 28.6 million of leases yet to commence and 41.9 million of leases and abatement.
This future cash flow is evidence of the leasing success of the team and will fuel future earnings growth. Although it does demand additional Capital spend in the short term
Finally, I'd like to draw your attention to page 25 of the supplemental, which includes new disclosure for the calculation of the portfolio's net effect of rents for the previous five quarters.
I’d highlight that Piedmont’s 5 Corner average is a gross rental rate of more than $46 per square foot, with a net effective rent after capex of $21.83.
We believe the current share price presents a compelling entry point for investors, with Piedmont's portfolio trading at roughly $800 per square foot valuation while generating an implied yield on cost after CAPEX of more than 10%.
With that, I will turn the call over to Brent for closing comments.
thank you, George Chris and Sherry
we continue to focus on designing Leasing and managing best-in-class, work environments, and believe that our recent leasing success is The Testament to our strategy. The reason Investments that we've made in our portfolio combined, with our customer Centric, placemaking mindset, continue to set us apart from the office sector. We will continue to be selected with capital deployment. Concentrating, our resources on driving lease percentage and increasing rental rates.
Which we believe will result in ffo and cash flow growth.
With that, I will now ask the operator to provide our listeners with instructions on how they can submit their questions.
Operator.
Thank you.
Ladies and gentlemen, at this time we will be conducting our question-and-answer session.
if you would like to ask a question, please press star 1 on your telephone keypad,
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1 moment, please while we pause for questions.
Thank you.
Hey, good morning everyone. Maybe Brent just high level. Um, Obviously good success in the leasing standpoint and just Sons is another portfolio, is going to start to stabilize here in 2026. And then I, I think you've outlined the plans to kind of resume a dividend in 2027, but taking a step back, if you look at the portfolio and just kind of how you're positioned in your markets, I know there's a big push to get 60% of the sun belts, like I guess, what are the longer term goals for exposures within markets and kind of, how do you think this kind of plays out over the next 2 to 3 years?
Thanks, I appreciate it, Nick, sorry. I just take a notice as uh, as you. You put the question out there, um, and I thank you for joining us this morning, in terms of, you know. Yeah, we have had an immense amount of leasing success and both in our in-service and out of service portfolios. And we anticipate both of those, uh, being, you know, approaching 90% lease here at the end of the year for the inservice and right behind it is the out of service, which will probably be somewhere around maybe 80% or so. So that success is really been driven by the the effort the teams put forth in terms of creating the right environment investing in the assets and elevating our service. Uh and that has been also aided by the fact that large tenants are back in the market.
So as we think about stabilization, I think we would agree with you that 26 is a period in which we really will be turning our attention to growth uh and looking to to continue to drive occupancy above, 90% of that.
Uh, the dividend is, we've talked about likely doesn't come back on until 2027. But in the meantime, we'll continue to fund. Very accretive leasing Capital, which is during returns of over 25%, and we're seeing growth in all of our markets, actually,
In terms of leasing velocity and absorption,
The Sun Belt, obviously, is performing extremely strong, but we are still seeing really good velocity and rental rate growth in Minneapolis and Northern Virginia. Now, New York continues to perform strongly. I would say that The District and Boston are the only two markets that continue to flag. Overall, this is a very strong portfolio, and we will continue to reposition and prune the portfolio.
With non-core assets and land sales or near-term.
And really try to continue to drive our exposure to the Sun Belt, which stands at about 70%. Today, it's upwards of 80%. Uh, obviously, there are a couple of transactions in the North that we've talked about, um, that would help aid that.
Uh, Minneapolis is the market. We've looked at Boston, and then we continue to evaluate monetizing our New York asset.
But overall, you will continue to see us focus on the Sunbelt market and likely to prune modestly near-term. Uh, and continue to rotate to the Sunbelt.
No, that's very helpful and then maybe George just wanted to touch on some of the larger pending vacancies and kind of the activities you're seeing. Um, and then also about the progress on on the New York City lease as well. So maybe you have the piper space in the in you the US building, uh, in Minneapolis, um, the city of New York. And then also, maybe talk about the Epsilon building, uh, in Dallas and kind of activity there. I guess we could make it the last 1, too, as well on uh, 999 Peach Tree space as well, but those 4 spaces in particular. Thank you.
Certainly good morning Nick. Um, I would say that.
When you look at our overall Pipeline and where that where that activity is coming from, that's where we feel pretty confident about backfilling, some of those large blocks of space, I mean, overall, right now we've got about in the early stage. We've got about, uh, 2.2 million square feet of outstanding proposals. Uh, 65% is for new activity. Um, and when you look at that activity, um, 55% of that for new space is actually going into Atlanta, uh, and that's that kind of address is 1 of the large expirations that we have in, in early 2026, which is ever since. So we've got about
9 deals today for that particular project which went back to all of that. Now, we're not suggesting that everyone in the deals were chasing, go back to the right away. But the fact of the matter is, we're getting a lot of good people. A lot of deal closes that particular project. And a nice part about it is that the rollups are going to be pretty strong. Once we have a chance to to Ink those transactions that we're chasing
head to Dallas and mention ever sheds expiring again in the second quarter of 2026, that's gave me about 20% of our overall New Deal activity there. So it's quite active. We've got about 2 3 deals for about 50 to 75,000 square feet. And again, once we execute on those transactions, we'll see some Roll-Ups there in that particular product.
This relates to Dallas. Oh excuse me, thank you. Go ahead, both in 2026 but coming closer to Piper. Um we you know, in Minneapolis, we're getting about 10% of our roll out new activity into Minneapolis. There's just a lot of excitement up there with all the things we're doing with our Renovations, so Piper does have about 120,000 square feet. Expiring at the end of the fourth quarter, at our downtown asset, but we've got some good news. We hope we can announce here. Uh, next few weeks to back up about 30% of that. And we have other deal like activities there as well, so we're pretty pleased with that. Um, but you know, kind of kind of pulling back a little bit. 1 of the other factors I want to mention is, is that, um, the size of transactions that we're seeing continued to be uh, many full floral large and deals. In fact, we've got about 15 of those proposals outstanding for about 25,000 square feet, or more, which Aggregates about 800,000 square feet. So, it's just that kind of activity that gives us a confidence to see the momentum, go beyond the third, the second.
In the second and third quarters of this year, I would add to that too. In terms of the Piper space, that building is coming. Renovation is completing this month, which is really exciting. We believe it will be one of the best assets in terms of amenities in downtown Minneapolis and is only getting better. To pick up more from where we left off in New York City, we are expecting to wrap up at least toward the end of the year as we continue to share. We would expect that again to be a renewal for substantially all the space.
Long term in nature. So, um, we'll provide more details, is that likely gets closer to execution, again, potentially around the time of the third quarter earnings call but more likely towards the end of the year from a timing perspective.
Very comprehensive and very helpful. Thank you. All.
Appreciate Nick.
Thank you. Our next question is coming from Ray Jiang with JP Morgan. Your line is life?
Good morning everyone. I have 2 questions. Um, first 1 on the guidance, um, you guys opportunistically bought back some dead. Um and it seems like the core is running stronger than expected uh with revised up on the leasing side. Um, just curious, you know, what were there? Any offsets that we should be thinking about in terms of the guidance? Like because at bottom line, it was not revised up. So um any thoughts there would be helpful or maybe you just come conservative
All right. Hey, and thanks for being on the call, I appreciate your questions. Um, on the debt buyback as we noted in the press release, it's about 2 cents per year on an annualized basis, um, a a creative event
That is off, that primarily by the asset sale, which is about 2 cents as well. Um, in regards to the leasing strength, you know, most of that will translate into growth in 2026 and Beyond. Um, you know, any leases that we signed today aren't really going to, um, you know, hit our income statement until 2026.
And I would just add to that too, we have seen, as noted, you know, we can continue to increase our guidance for lease percentage and square feet for the year. And that has been driven a lot by large tenant activity in our out-of-service portfolio as well. So, that is something to note, you know. It doesn't get captured immediately in the guidance, per se, but is setting up again for additional growth in 2026.
Yes, sir. Helpful. Thank you so much.
and um my second question is then on Capital allocation um, you guys mentioned as you soon to wrap up the New York City lease, um, that's on the deck to be, you know, um, and I and I don't want to tap in terms of source of funding, um, maybe first
Um, can you give us some insights on how you think about the buyer group, uh, and potential outcomes dependent on that in terms of pricing? Um, and then on the redeployment side, how should we think about it? Um, core value, add or, I don't know. We would consider dead, um, any color on those and maybe, you know, targeted cap rates or irrs any color on that side will be helpful as well. So, um, thank you.
Yeah, yeah, Ray. Um
you know, if we continue to execute on
Really see activity. Come back into all our markets, it is starting to, you know, improve the overall sales and transactions Market. Um, you know, just
Assume that vacant space will remain vacant forever. Uh, and so we were starting to see solidification if that's a word for pricing, uh, in the market, particularly for more core, uh, quality assets. Uh, we're not seeing that kind of uplift if you will, in other parts of the, of the value, add and opportunistic Spectrum. But certainly Capital has started to come back into markets like New York. We're seeing it in in Dallas. Uh, and continued, uh, kind of
Solidifying of high quality asset valuations. And I think that also then gives us some expectation that if we continue to be patient. The overall sales Market will continue to strengthen in our favor um because we think about near-term dispositions that's really focused on some select non-core assets, uh, and land, uh, looking to dispose of that, the operators of other uses primarily retail and resi to augment our existing office. That's adjacent to our land. So we almost feel like we're getting paid to a men. Tied, that'll be expected this positions, maybe 1 of those Parcels this year, another larger process will next year. And as we think about, you know, continuing to rotate Capital, we will be focused on this position in our Northern markets into the Sun Belt markets. Um that can expand the wide range of cap rates, um, you know, our Boston asset which we just disposed of within a, a low double digits cap rate.
Uh, but I would anticipate, most of everything else in the portfolio, given that was our lowest quality asset with price. Well, tied to that,
Uh and frankly most of our assets should probably price somewhere towards an 8 cap or better. Uh so I think that would give some indication as to what the average cap rate in the portfolio. Might be, uh, we have, uh, you know, some buildings in the north that we've talked about disposing of, or monetizing and potentially looking at at, uh,
Cashing it in, if you will, a state in the asset, and we'll continue to evaluate those. Uh, probably pricing. We can still be in that 8 to 9 cap zip code. Uh, right now, buyers we're seeing in the market for core assets. We're starting to see some foreign buyers come back into the market. Uh, certainly, high net worth family offices have been in the market for some time.
Uh, and we are seeing a little bit of institutional Capital particularly in, you know, again, stronger markets, like New York.
that come back and continue to give us the belief that
And real estate-minded buyers would be, uh, interested in that market at the right time. When we look to monetize that asset,
So hopefully that gives you some sense of the dispositions in terms of redeployment of that Capital uh right now you know we continue to look at primarily what I would consider 4 plus less value add if it were to go on the balance sheet. Unfortunately today we don't have a cost of capital that really affords us to execute on that right now. But we do also continue to look at more distressed opportunistic deals through a JV partnership structure uh which we take advantage of of that distress and be. Frankly something that we would want to put on the balance sheet day 1. Um, given is likely to have a lot of capital needs Andor vacancies as well, but it would be something that we'd eventually want to bring into the portfolio and that would generate returns, you know, call it
18% our ours levered or or greater and in terms of what we were looking at on balance sheet. Again, we don't have a cost of capital to go after that, but probably something that would look like going in cap rates in the 8 to 9 zip code on a cash basis, better on a gap basis, a modest role profile but an opportunity for us to do what we do best which is to improve a high quality older vintage assets uh into modern High performing Office Buildings.
This is extremely helpful. Thank you so, so much.
Thank you.
As a reminder, ladies and gentlemen, if you have any questions or comments, you may press star 1 on your telephone keypad to join the key.
Our next question is coming from Dillon. Berzinski with Green Street, your line is live.
All right, guys.
Thanks for taking the question, Brent. I think you mentioned in your prepared, marks that 80% 80 to 90% of of the least percentage Gap, uh should commence by by year in 26.
Um, are you able to share sort of what that looks like on? On a way? The average basis is most of that likely to commence in in the first half of the year or is this all sort of back in weighted.
Hey John, this is Brent. Thanks for grabbing or enjoying the call today. Um, in terms of your question, the
Exactly, as we describe, we'll have at least 80 to 90% of that, uh, embedded $71 million commencing by the end of next year. Uh, there is a good chunk that's going to start in the first quarter, actually, um, or call it a little bit in the fourth quarter, and a good chunk of the fourth quarter of next year. Uh, call it maybe.
40% or so.
Between the fourth quarter of this year, at the end of the fourth quarter, really, and then the first quarter next year? Then right now there's a little bit of a pause and then we'll pick back up with a good bit of it. But also coming back in towards the end of the third and the fourth quarter as well. So it's almost like a
I don't know, like a smile, if you will, where it's a little bit more front-end and back-end weighted with a little bit of a lull in the middle.
Great. That's helpful color and then maybe if you can just provide details on what you think is sort of driving this this reinvigoration of of leasing activity, particularly amongst some of the larger tenants that you mentioned in your markets. Um and then I guess is this sort of net new demand within those markets or is this sort of musical chairs where the tenants moving out of an older are looking to move out of an older building and upgrade their their physical space with uh you know, a property that people might owns.
Good morning, sisters. We see that coming from six or seven different areas. I mean, first of all, one of the largest users that we were able to sign this quarter, who had actually billing signage and had the billing slightly refreshed, decided to move to upgrade their overall office experience because of the renovation that we were pursuing in Minneapolis.
Um, is bringing a broader range of amenities and nicer finishes bringing more of a hospitality field?
So upgrading the office experience is the first 1. We're seeing a lot of continued RTO mandates, being reinforced and being expanded. Uh, as I mentioned, in my pre-recorded remarks, we had a net 26 expansion for 80,000 square feet, but let me blow that up a little bit more. It was like, you see 39, uh, expansions versus 13 contractions. So that's been really helpful uh, larger users. Uh, are gaining greater conviction in terms of the workplace strategy. I think a lot of that probably has a lot to do with we've experimented with this hybrid work environment for a long time. And I think there's been a more biased to come back to the office. And I also think the balance between
Employers and employees is beginning to tip back into the favor of the employer.
Um, I would say office conversions and demolitions. Um you know, those are certainly heating up and speeding up and that's allowing us to take a look at those uses that have to be kicked out of those particular projects. We've seen that in Atlanta, as well as New York and we're starting to see that in Nova as well. Uh, and then it transitions to special services, right? We had, um, we had a large user that we found these again in Minneapolis, who was in a park. Very nice park with a lot of amenities but the capitalist structure was pretty broken, um, and they didn't want to live through that transition to a special services. So uh when you put all that together that's what's allowing us to continue to see the momentum and we we continue to be uh open-minded in terms of, you know, Landing large deals for for a longer term leases.
I I also we continue to, to see, you know, really small, tenants have continually been in the market but large, tenants, they put that, you know, space fee on. Pause really. Trying to figure out the environment. And now, as we've seen them come back into the market, it has created a little bit of a, of a, in pick up a demand because those best buildings, we've talked about that's 5 or 10 assets.
There's not a lot of large blocks that are 50,000 square feet or greater and those buildings. And so I mean user groups, particularly large users that have in pending expirations know, they need to got to make a decision and if they want quality space sooner rather than later and that is also put I think a little bit more emphasis, uh, to uh, the decision making for large users.
You know, I would continue to say that overall the portfolio, we did 700,000 square feet of leasing this quarter, roughly. 470,000 of that was new. And what was interesting about that is, it was predominantly new, but a lot of that was for, you know, let me call it unoccupied space. 25% was actually for occupied, but the remaining of that 470 was split between the out-of-service portfolio and the operational portfolio. So we've continued to see a lot of leasing in all of our areas of the business; not all of it shows up in the same reporting mechanism.
But I think that just overlays the reason why we haven't changed our lease percentage guidance for 2025, despite all this leasing, because it is going into some buckets that are not necessarily captured in that in-service number.
Thanks guys. That was just it.
In terms of the final point on whether this is net new demand, I would say overall, it's mostly in the market. Dallas is the one market where we continue to see, and we've talked about on our priority call, that Atlanta has still some demand, but Dallas continues to show momentum. Really, over the last three years, in terms of inbound migration, both from larger users and even smaller ancillary companies, we've been the beneficiaries of that primarily in that market. Otherwise, this is us just continuing to capture more than our fair share of the overall market because of the quality of our assets, the service, and the environments we're creating.
Thank you. Ladies and gentlemen, as we have reached the end of our question-and-answer session, I would like to turn the call back over to Mr. Smith for any closing remarks.
Uh, I want to thank everyone for joining us today. Uh, hopefully, it's come through that we are extremely positive and excited about our track record of operational growth. Um, you know more recently, but really consistently post-pandemic. And I think it's really starting to show through in terms of the quality assets and the positioning of our platform for future growth.
I'd encourage investors if you're still trying to understand the pedmont story and our success, and we're out of what makes up our secret sauce. Come to Atlanta spent some time with management. We can show you billion 4 of assets and about 2 hours. Uh, and if you've got other time, we'd love to host you in Dallas, or Minneapolis or any Market that you happen to be traveling to, uh, I'd also encourage investors. We'll be at NAIT in Dallas in December. I know that's a ways out, but we will be having a tour of our, uh, Galleria Dallas asset on that, uh, uh, uh, uh, event. And if you're interested in joining, please let Sherry or Jennifer know again, thanks everyone for joining
have a good week.
Thank you, ladies and gentlemen. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.