SOUTHEAST SNAPSHOT, JULY 2004

Atlanta Office Market

Developers in metro Atlanta are taking a more conservative approach to new construction, as a glut of vacant space is currently on the market, according to Daniel Wagner, director of research with Advantis Real Estate Services Company/ GVA. “Purely speculative office development is non-existent now, and the only area with any significant development activity is the Midtown submarket,” Wagner says. “Additionally, Midtown’s development activity is due primarily to significant pre-leasing activity, with 80 percent of the space under construction currently committed.”

The Midtown submarket is the area on top in terms of overall development activity (1.18 million square feet), primarily due to the signing of lead tenants for some significant office developments. Currently, Symphony Center at 1880 Peachtree is under construction (665,000 square feet), and Atlantic Station at 171 17th Street is under construction. “Without significant tenant commitments it is unlikely these buildings would currently be under development,” says Wagner.

Also in Midtown, the 1180 Peachtree building will deliver in spring 2006 and be occupied by King & Spalding, which will move from Downtown. The decision by King & Spalding to relocate to 1180 Peachtree began a pattern; the firm of Powell Goldstein Frazer & Murphy has decided on a new Midtown location and several other firms have opted to remain in Midtown as a result. One big boost to the Buckhead submarket is the addition of 700,000 gallons of sewer capacity for the Peachtree Road area. Projects such as Two Buckhead Plaza, a residential/ office complex in the heart of Buckhead, and Pope & Land’s site at Peachtree and Piedmont roads, which is slated for an office tower, may now proceed as planned due to this increased capacity. These office projects will add space to a tightening Buckhead office submarket and create more residential housing options for people working in Buckhead.

The Central Perimeter and North Fulton submarkets have taken the heaviest hit in terms of occupancy losses over the last 2 years; both submarkets are hovering near 30 percent vacant. “It will be interesting to see how well these areas recover over the next couple of years,” Wagner notes. “Their draw is historically strong due to their suburban location and proximity to executive housing.” Buckhead is a submarket to watch. Condo development is rapid and the addition of sewer capacity for the Peachtree Road area will most certainly result in significant new development activity.

The market is still in flux; there are indications of possible sustained activity during quarters but they are followed directly by negative activity. Additionally, there is still more than 5.5 million square feet of sublease space on the market, a trend that seemingly will never end. But this surplus will dwindle over time as the space is either leased or the subleases expire. “If this space is not absorbed and sits vacant or partially occupied by the end of the sublease term, we may see a rise in the direct vacancy rate as space is returned to landlords over the next several quarters,” Wagner says.

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