Creative Office Space Fuels Growth in the Already Robust Atlanta Market
The former Aaron’s headquarters at 309 E. Paces Ferry Road in Atlanta’s Buckhead district was converted to creative office space and is now achieving top of market rents.
Although so-called “creative office space” is for now a tiny slice of the overall supply in Atlanta, it represents the most significant change in the use of office space in generations.
Tenants and landlords have only begun to use creative design principles to push rents past levels previously thought unreachable, while increasing worker productivity and satisfaction. Trends in this sector will define the American workplace for decades.
The largest users of creative office space — also commonly referred to as loft office space — today are in the TAMI sector (tech, advertising, media and information), but law practices, engineering firms and others are also embracing the open office concept.
In Atlanta, there is 3 million square feet of creative office space, which is only 1.2 percent of the metro area’s total inventory. But the vacancy rate for creative spaces is just 8.3 percent and the gross asking price is $29.90 per square foot, both considerably outperforming the traditional office arena.
Since 2013 the asking rate for traditional office space in Atlanta has grown 17.2 percent. For creative space the asking rate has shot up 62.5 percent. The top end asking rate for creative spaces is more than $6.50 higher than conventional space on a per square foot basis.
The current situation represents an about-face on office space and rents as creative/loft space used to be the low-cost alternative. Also, while some tenants in the TAMI sector are experiencing very high growth, there is also a high failure rate. From a landlord’s perspective, that might seem to be a recipe for disaster, but in Atlanta and elsewhere, employment growth has been driven in no small part by TAMI companies.
According to Forbes, Atlanta has seen a 46.7 percent jump in tech jobs since 2010, about 20 percent above the national average. With more than 200,000 high-tech professionals, Atlanta is not just a steady market for technology firms, it is the Southern hub, and has been given a boost by the film industry that has driven thousands of jobs that are tracked by the Bureau of Labor Statistics as technology jobs. Additionally, graduates from local universities like Georgia Institute of Technology, the University of Georgia, Emory University and Georgia State University are helping stock the labor pool of tech talent.
Since the advent of Turner Broadcasting System and CNN in Atlanta, media has been an important component of the jobs market. Whether the company is a small startup (insightpool), an established tech mainstay (MailChimp), a fintech behemoth (Fiserv, NCR), or a healthcare IT firm, Atlanta has the fifth largest cluster of IT employment in the United States and the infrastructure to support other TAMI companies.
The city is one of four Tier-One data center markets on the Eastern seaboard and the only one south of Washington D.C. Tech firms increasingly rely on off-site data storage, and coupled with Atlanta’s low exposure to natural disasters, great infrastructure and core of established tech companies, that puts the metro area at No. 3 on Forbes list of “tech boom” markets.
So, while the inventory of loft office space is small, it is growing in lockstep with demand. The former Aaron’s headquarters at 309 East Paces Ferry Road in Buckhead has been converted to creative office space and is achieving top of market rents. There are many other projects where creative office space is being built or created through renovation and conversion as well.
Going forward, we can expect traditional office users to implement creative space concepts to attract workers, increase densities and lower marginal costs. For owners, that means the former low-cost alternative is now the space most in demand.
— By Hunter Henritze, Senior Vice President, Co-Head of Office Leasing, Lincoln Property Co. Atlanta. This article originally appeared in the October 2017 issue of Southeast Real Estate Business.