As Atlanta moves further into 2001, it appears that the economic engine of the Southeast is slowing. For the past five years, Atlanta was the strongest city in the nation in terms of demand for space, new development, job growth and in-migration. But with growing uncertainty about the economic future of the country, Atlanta and other U.S. markets are realizing that the boom of the late 1990s is over, at least temporarily. However, local economists such as Dr. Donald Ratajczak predict that the current slowdown is temporary and necessary to bring the local economy back to sustainable levels of growth. "We should begin seeing positive growth again towards the end of the year," he said at a recent market forecast event.

In fact, the current slowdown can give Atlanta a chance to catch up with itself and develop the additional infrastructure -- roads, sewer lines, power, schools, parks, etc. -- necessary for continued success. According to Ratajczak, "Since 1992 when we built our last major highway, the Georgia 400 tollway, we've increased our job base by 55 percent whiles our road capacity only grew 6 percent." The resulting traffic congestion has hurt the city, particularly in the suburbs where commute times are some of the longest in the nation. "But on the flip side, the congestion has helped Atlanta's in-town neighborhoods such as Downtown, Midtown and Buckhead," notes Dan Granot, a senior managing director with the Atlanta office of Insignia/ESG. "People now want to get back inside I-285."

Downtown

Downtown Atlanta has seen a resurgence since playing host to the Olympic Games in 1996. That publicity revitalized the area and a new city center has developed around Centennial Olympic Park. An ever-growing list of new construction and renovation projects is springing up in this area. One of the first home runs was Centennial Tower, an older 36-story office building that was completely redeveloped to Class A status. After the renovation was completed, this building was quickly leased up by companies including Turner Broadcasting, Interland and Edelman Worldwide.

Encouraged by this success, a partnership comprised of Selig Enterprises, the Harold A. Dawson Company and Southeast Capital Partners have begun construction on a major mixed-use development adjacent to the northern end of the park. Named Centennial Hill, the first residential phase, Museum Tower, is now underway, and demand for these upscale condominiums is so strong the development team has added additional units to the tower, which will also be home to the Atlanta Children's Museum. The second phase is ready to begin soon. "We're now marketing Park Tower, the office component of Centennial Hill, and will break ground once we secure an anchor tenant," says Mike Aiken, an Insignia/ESG leasing agent handling the pre-leasing.

Also centered around the park is Atlanta's new "entertainment district" with the renovated CNN Center, new Philips arena, Georgia Dome and Georgia World Congress Center (GWCC). The GWCC is currently undergoing a massive expansion that will make it one of the country's largest convention facilities when completed next year. A number of older hotels in this area have been renovated and are operating under new brands, and a brand-new Embassy Suites hotel was developed on the west side of the park. While experts in the convention business say that the slowing economy may impact convention attendance over the short term, and therefore hotel room occupancies, the long-term outlook for Atlanta's convention and hotel industry is very strong.

Downtown Atlanta continues to be the submarket of choice for telecom companies, thanks to an existing world-class network of fiber optics lines and duplicate power grids. Demand for telecom switch sites continues to be strong, and many older buildings are enjoying full occupancy by banks of computer networks instead of office workers. The historic Macy's department store was recently redeveloped to allow Macy's to continue operating on the lower floors, while the upper stories were quickly leased by telecom companies. "The building sits atop more fiber optic lines than any other building, and as a result, demand was spectacular," says Paul Pariser, a principal with Taconic Investment Partners. Taconic purchased the building, now renamed AtlantaXchange, in August of last year.

In addition to growing telecom firms, traditional office space users such as Turner Broadcasting, SunTrust Bank and Norfolk Southern are also expanding their CBD operations. The delivery of the Portman Holding's SunTrust Plaza Garden Offices in the second quarter of 2001 paved the way for the CBD's year-to-date absorption level of just under 1 million square feet. As a result of that project's success, several developers have proposed new Class A projects for downtown but will not break ground until a major anchor tenant is secured. Turner has announced a new building to be developed adjacent to CNN Center, and plans also call for a major renovation and expansion of the Omni hotel.

Office

Just north in Midtown, a market that has seen no new office development since 1990 and vacancy rates under 5 percent for the latter half of the decade, construction is now booming. Almost 1.5 million square feet of space in three Class A office towers are now being built: Millenium in Midtown, a mixed-use project by Holder Properties, Atlantic Plaza, a new office building being developed by Pope & Land Enterprises, and Trammell Crow Company is constructing Proscenium at 14th and Peachtree Streets.

The timing of the delivery of these new projects could cause vacancy rates to rise as this new space is brought on-line, especially when compounded with the increase in sublease space on the market caused by the demise of many high-tech firms. Midtown was (and still is) the submarket of choice for many dot com companies, and with Wall Street's on-going correction in stock market valuations, many of these firms are downsizing or closing their doors, adding their space back to the market.

"Midtown's fundamentals are still strong," notes Kevin Markwordt, an Insignia investment sales broker who has completed a number of transactions in the area. "The density of office, residential, retail and cultural/entertainment options is unmatched anywhere else in Atlanta. It is fast becoming our newest ¹24-hour' neighborhood." He adds that the plan by Georgia Tech to expand across the interstate and the bridge that will link Jacoby Development's massive Atlantic Station mixed-use project will only further enhance Midtown.

Industrial

Atlanta's industrial market has been seeing its share of activity over the past few months. On the south side of the city, local developer McDonald Development Company is underway with WestLake 200, a 280,855-square-foot cross-dock facility at its WestLake Business Park. The park is located at 5800 Plummer Road, at the intersection of Fulton Industrial Boulevard and Camp Creek Parkway. Smallwood, Reynolds, Stewart, Stewart & Associates is the architect for the project.

Duke-Weeks is also staying active in South Atlanta in Liberty Park, a 352-acre mixed-use business park in McDonough. The company recently completed a lease agreement with GENCO Distribution Systems Inc. for 228,300 square feet of Liberty III, a 506,700-square-foot bulk distribution facility currently under development in the park. It is slated for completion in June.

Retail

Further north along Peachtree Street is Atlanta's premier submarket -- Buckhead. This area is the jewel of the city, offering the most upscale shopping centers and boutiques, single- and multifamily residences, hotels, office buildings and nightlife/entertainment venues.

The combination of Lenox Square Mall and Phipps Plaza, both owned by Simon Property Group, is undoubtedly one of the strongest retail draws in the entire Southeast, offering an unbeatable combination of exclusive shops and eateries. The entire length of Peachtree Street through Buckhead shows the complete retail spectrum, from posh salons and boutiques to in-town versions of large retailers such as Target and Circuit City. Developers such as The Sembler Company are being creative with in-town shopping center layouts, sometimes stacking the big boxes and adding deck parking in order to control land costs in this desirable submarket.

Demand for office space in Buckhead continues unabated, despite the cooling economy. Class A vacancy is only 6.4 percent as of year-end 2000, and this continues to drive new development, despite the fact that more than 2 million square feet of new buildings were added during the last two years of the 1990s. Currently under construction is TrizecHahn's Alliance Center, and Carter & Associates is developing Lindbergh Center, a major mixed-use project on the Lindbergh MARTA site. Lindbergh Center will eventually become one of the city's premier "live, work, play" developments, offering a mix of office space, street-level retail, and multifamily residences.

Atlanta's suburbs will continue to attract companies and families, despite the growing traffic congestion and concern about sprawl. "In Atlanta, you can have a big house on an acre lot and walk to a golf course," says economist Ratajczak. "People say we should have a dense urban core with high-rise residential, but the truth is people don't want that. They want what Atlanta is doing."

But with no natural boundaries for Atlanta, the result is sprawling suburban subdivisions and an increasing amount of time in the automobile. As a result, housing prices are only rising by about 3 percent each year outside the perimeter highway, whereas in-town values are increasing by more than 10 percent annually. This is driving much of the in-fill development inside Interstate 285, with developers seeking to maximize density in order to keep land costs down or redeveloping older properties to new use, such as older warehouses becoming loft offices or condos. An example of this is the redevelopment of a historic Scottish Rite hospital in Decatur to office and residential use.

Even with this increased in-town focus, Atlanta's suburbs will continue to prosper, due to their historic strengths: the lower cost to develop new office, industrial, and retail buildings, ample land for development and parking, and plentiful choices of relatively inexpensive single- and multifamily housing. Industrial development in particular, such as distribution centers, warehouses and other facilities, tends to boom along Atlanta's northern and southern interstates, as companies desire to find cost-effective sites to build their buildings, seeking easy interstate access and nearby quality labor pools.

Duke-Weeks Realty Corporation of Indianapolis is underway with a number of new projects in Atlanta's suburbs. Northeast of the city in Gwinnett County, Duke-Weeks has teamed up with M.D. Hodges Enterprises to develop the third facility in Hillside at Huntcrest, a mixed-use office park scheduled for completion in January of 2002. Hillside at Huntcrest III will be a 135,533-square-foot, five-story faciliy. Also in Gwinnett, Duke-Weeks is developing Breckenridge Place, an office park located on 62.3 acres. Breckenridge Place is masterplanned for up to six, two-story, 100,000-square-foot office buildings and one, one-story, 42,000-square-foot building.

As in the past, new suburban development nodes will begin around new regional shopping centers. Both the now long-established and extremely successful Galleria area at I-75 and I-285 and Perimeter Center at I-285 and Georgia 400 began with the opening of Cumberland and Perimeter Malls, respectively. During the 1990s, the development of North Point Mall on Georgia 400 in the northern portion of Fulton County resulted in one of the nation's fastest-growing office markets. The same holds true for the areas surrounding Town Center in northern Cobb County and Gwinnett Place Mall along I-85 north. The recent opening of The Mall of Georgia at Mill Creek is already driving new office and retail development, and this area is predicted to be one of the fastest-growing submarkets in the country during the next few years.

While growth will be less dramatic than in previous years, Atlanta is still predicted to surpass the U.S. average in terms of job growth and the city's economic fundamentals remain sound. A diverse economy, low cost of living and operating expenses, a pro-business environment and an excellent quality of life ensure Atlanta's long-term success. In addition, an enviable fiber optic and power grid, a critical mass of established high-tech firms and a steady supply of educated workers cements Atlanta's standing as one of the nation's top "wired" markets.

James E. Ledbetter, Jr. is executive director of Insignia/ESG in Atlanta.


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