The Atlanta Office Market enjoyed its first quarter of positive absorption in over 18 months, with 177,000 SF of absorption. Headquarter relocations, tenant expansions and new industry growth have been the biggest drivers of this year’s positive activity. Despite the improvement, Atlanta’s vacancy still hovers near a record rate at 19.6% with 39.3 million SF available. Office leasing looks to remain active through the end of the year, with a number of significant requirements in the market, which may result in overall positive absorption for 2010. The national vacancy rate is currently 17.4%, which is the highest since 1993.
“Where is the bottom?” is a question we are frequently asked. Historically, Atlanta has seen about 3.5 years of flat absorption in past recessions. This economic downturn has been called the worst since World War II, yet the office market is acting in step with previous downturns. That would indicate a likely flat environment for another 12 months, leading us to believe that we are in the vicinity of the “bottom” – perhaps bouncing back already, or perhaps bumping along for a couple of quarters. There is too much uncertainty in the financial and employment markets to predict a quick comeback, but momentum and continued absorption in the second half of 2010 would be trend indicators. However, as tenants continue to drive efficiencies in facility design, it will take longer than typical for the market to fully recover.
Highlights of Second Quarter Include:
• NO Construction: For the first time in 16 years, Atlanta did not deliver any new office space. The lack of construction and positive absorption should lead to vacancy rates flattening, even falling, across Atlanta’s submarkets. Additionally, there are no speculative buildings under construction in the Atlanta market.
• Class B Space Leading the Way: Class B properties absorbed more than 325,000 SF, attributed primarily to two large move-ins: the 127,823 SF relocation of The Atlanta Journal-Constitution into 223 Perimeter Center and Physician’s Education 100,000 SF move to Corporate Spectrum.
• Rental Rates Stabilizing: Average quoted rates have fallen for the ninth straight quarter (6.7% over the period) to $19.64 for the entire market and to $21.76 for Class A space. The minimal decline over the past few quarters suggests stabilization, thus prompting businesses to take advantage of favorable concessions before rental rates begin to climb again.
• Investment Activity: Investment activity is significantly up, with the total year to date sales already surpassing the entire volume for 2009.
In this environment, we have seen many situations where building operating expenses passed on to tenants are greater than what they should be. It is important to monitor these expenses and review on an annual basis to make sure you are getting charged properly per lease definitions. Going forward, it is also a critical to negotiate language, proper base years, exclusions, and caps where possible to limit these costs – they can be very impactful over the life of a deal.
Enjoy the enclosed market report and contact me with any questions, or if we can assist you with any strategic real estate analysis throughout the United States.
Michael J. Lipton
Senior Vice President, Principal | Atlanta
Dir +1 404 877 9228 begin_of_the_skype_highlighting +1 404 877 9228 end_of_the_skype_highlighting | Mob +1 404 509 4242
Main +1 404 888 9000 | Fax +1 404 870 2845
Two Midtown Plaza, Suite 1100
1349 West Peachtree Street, NE
Atlanta, GA 30309-2956 | USA