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Hudson Pacific saw improving office fundamentals in Q1, with 554,000 square feet of leases signed, occupancy rising to 77.8%, and the leasing pipeline reaching 2.4 million square feet. Management said AI- and tech-driven demand is especially strong in the Bay Area and Seattle.
The company raised full-year 2026 Core FFO guidance to $1.10 to $1.18 per diluted share from $0.96 to $1.06, citing better-than-expected first-quarter results and benefits from reclassifying certain Quixote operations. Hudson Pacific also ended the quarter with $933 million in total liquidity.
Studio performance was mixed but restructuring is expected to help, as prime Hollywood stages remained highly leased while Quixote-related revenue fell. Hudson Pacific said it will wind down certain Quixote operations, a move expected to improve annual cash NOI by about $5.8 million.
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Hudson Pacific Properties (NYSE:HPP) executives said the company began 2026 with improving office occupancy, stronger leasing activity and a higher full-year funds-from-operations outlook, while continuing to streamline its studio-related operations and pursue non-core asset sales.
Chairman and Chief Executive Officer Victor Coleman said on the company’s first-quarter earnings call that Hudson Pacific “delivered improvement in both occupancy and cash flow” and sequentially increased FFO in total and on a per-share basis. He pointed to more than 500,000 square feet of office leasing, a third consecutive quarter of occupancy gains, reductions in general and administrative expenses and total liquidity above $930 million.
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Coleman said West Coast office demand is being supported by venture capital investment, particularly in artificial intelligence and technology. He cited $267 billion of venture capital deployed in the first quarter and said that capital is translating into leasing demand across Hudson Pacific’s markets.
President Mark Lammas said Hudson Pacific signed 554,000 square feet of office leases during the quarter, with 49% of that volume coming from new leases. The company’s in-service office portfolio occupancy rose to 77.8%, up 150 basis points sequentially, while the lease rate increased to 78.4%, up 140 basis points.
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Lammas said GAAP rents increased 1.8%, while cash rents declined 2.4%, representing sequential improvement in both measures. Net effective rents rose 4% sequentially but were down 2% from a year earlier, a comparison he said was affected by a large prior-year lease with the City and County of San Francisco at 1455 Market.
The company’s leasing pipeline rose to 2.4 million square feet, up 13% from a year earlier, and tours totaled 2.2 million square feet in the quarter, up more than 30% year-over-year. Lammas said a third lease with the City and County of San Francisco, which would effectively absorb the remaining vacancy at 1455 Market, remained on track to be finalized in the second quarter.
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Hudson Pacific also reported close to 60% coverage through deals, leases, letters of intent or proposals on roughly 600,000 square feet of expirations for the rest of the year, including full coverage on PayPal at Fourth and Traction and 80% coverage on Dell at 875 Howard.
Coleman said the Bay Area remains the strongest market in the company’s footprint. He said San Francisco recorded 2.3 million square feet of positive absorption and 4.1 million square feet of leasing activity, with AI-related tenants accounting for nearly 60% of total volume. He also said asking rents in San Francisco rose nearly 4% year-over-year.
In Silicon Valley and the peninsula, Coleman said momentum is continuing, particularly in Redwood City and Foster City, where the company has assets. He said Puget Sound posted its second straight quarter of positive absorption, with downtown Seattle beginning to capture more AI and technology demand. Los Angeles fundamentals remain challenged, he said, though Hudson Pacific has limited near-term availability there.
In response to analyst questions, Coleman said demand is coming from both larger tenants and smaller growth-oriented technology companies. Executive Vice President of Leasing Art Suazo said AI-related demand has increased within the company’s pipeline and that many smaller tenants are seeking ready-built, highly amenitized space.
At Washington 1000 in Seattle, Lammas said tenant interest has increased meaningfully and that the company now has coverage for about 60% of the project. Hudson Pacific plans to deliver 70,000 square feet of move-in-ready suites in the second quarter. Suazo said seven deals are in negotiation at the property, including four tied to ready-built suites, with two of those in later-stage negotiations.
Hudson Pacific’s studio business showed strength at prime locations but continued to face pressure from Quixote operations. Coleman said U.S. production activity remains subdued, but added that the company’s Hollywood stages were 97% leased and that Sunset Pier 94 reached 100% leased during its first quarter of operations.
Lammas said in-service stages were 72.8% leased over the trailing three months. Excluding Pier 94, which entered service during the quarter, stages would have been 78.2% leased, up 370 basis points sequentially. The company’s Hollywood stages at Sunset Bronson, Sunset Gower and Sunset Las Palmas were 97% leased over the trailing three months, up 280 basis points.
Studio revenue declined $2.4 million sequentially, which Lammas attributed to lower demand for Quixote’s lighting and grip, pro supplies and fleet. Expenses declined $2.1 million, resulting in a $300,000 sequential decrease in studio NOI to $1.5 million. Excluding Quixote, Sunset Studio NOI increased $1 million sequentially and $1.8 million year-over-year to $7.4 million.
The company said Quixote will wind down leased soundstage facilities and Atlanta-area operations. Lammas said that move would equate to approximately $5.8 million of annual cash NOI improvement. Coleman said the company remains committed to making Quixote earnings neutral by year-end.
Chief Financial Officer Harout Diramerian said first-quarter total revenue was $181.9 million, compared with $198.5 million a year earlier, primarily reflecting the sale of Element L.A. and office tenant move-outs, particularly Uber’s departure from 1455 Market midway through the first quarter of 2025.
General and administrative expenses declined 32% to $12.6 million from $18.5 million in the prior year. Core FFO was $16.5 million, or $0.25 per diluted share, compared with $12.9 million in the prior-year period. Same-store cash NOI was $85.2 million, down from $92 million a year earlier, driven by lower office revenue from tenant move-outs and partially offset by higher studio revenue from increased production activity at Hollywood assets.
Hudson Pacific ended the quarter with $933 million of total liquidity, including $138 million of cash and full availability on its $795 million credit facility. Diramerian said interest expense declined 13% year-over-year, producing $5.5 million of savings, and that all of the company’s debt was fixed or capped.
The company raised its full-year 2026 Core FFO outlook to $1.10 to $1.18 per diluted share, up from its prior range of $0.96 to $1.06. Diramerian said the increase reflects about $0.04 of first-quarter outperformance from Super Bowl parking revenue, lower repairs and maintenance expense and favorable CAM reconciliations, as well as a $0.09 benefit from reclassifying certain Quixote operations as discontinued operations beginning in the second quarter.
Coleman said Hudson Pacific is targeting approximately $200 million of FFO-accretive, non-core dispositions this year. He said the company has a buyer and agreed price for 10950 Washington and has another asset under contract.
During the question-and-answer portion of the call, Coleman said the company plans a full disposition of 10950 Washington after considering both joint-venture and outright-sale options. He said the agreed price exceeded the company’s expectations.
Lammas also said Hudson Pacific is exploring adaptive reuse opportunities. The company plans to submit for re-entitlement of the 164,000-square-foot office component at 901 Market as residential in the second quarter, with an expected resolution by year-end. It is also evaluating potential mixed-use redevelopment of excess surface parking at select assets in Palo Alto, Redwood Shores and Foster City.
Coleman said the quarter shows Hudson Pacific’s markets are recovering and that the company’s actions are aimed at creating “a clear and credible path to FFO growth” through the rest of 2026.
Hudson Pacific Properties (NYSE: HPP) is a self-managed real estate investment trust focused on the acquisition, development and management of high-quality office and studio properties. The company's portfolio spans strategic West Coast markets in the United States and key markets in Canada, providing space for technology, media and creative companies as well as major film and television producers. As an owner and operator of both traditional office buildings and specialized production facilities, Hudson Pacific seeks to deliver stable income through long-term leases and strategic property enhancements.
In its office segment, Hudson Pacific targets markets with strong job growth and limited supply, including Los Angeles, Silicon Valley, San Diego and Seattle, as well as Vancouver, British Columbia.
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The article "Hudson Pacific Properties Q1 Earnings Call Highlights" was originally published by MarketBeat.
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