Commercial real estate sentiment has returned to pre-pandemic levels, according to NAIOP’s fall 2021 survey. Those views are good news for the commercial real estate industry generally, and the metro Atlanta office market is helping to provide some impressive specifics behind the rising optimism. At 2 million square feet of office space, Atlanta led the country in positive absorption in third-quarter 2021, approximately 700,000 square feet ahead of No. 3 market New York City, according to Colliers International research.
Atlanta’s relatively low costs, attractive weather, growing demographics and educated labor force are big advantages for the city’s economy and office market. Metro Atlanta ranked No. 8 for year-over-year job growth in August among the largest U.S. metro areas with an increase of 124,300 new jobs, according to the U.S. Bureau of Labor Statistics. Atlanta recorded an unemployment rate of 3.1 percent that month for the market, 210 basis points lower the national figure.
Jeff Pollock of Pollock Commercial
Atlanta also ranks No. 8 nationally for tech talent, according to CBRE, with total tech occupations having increased 15.2 percent from 2015 to 2020.
Savills cited Atlanta’s highest growth rate for technology-related graduates in the country, a big draw for innovative companies looking to relocate to or expand in Georgia. And there’s plenty of money to go with the manpower: the company reported that venture funding in the first half of 2021 exceeded the amount for the entirety of 2020. Tech companies continue to favor collaborative, non-traditional office space such as that found at Ponce City Market, The Interlock and Carriage Works, among others.
The above performances certainly helped Atlanta’s third-quarter absorption performance as did newly completed projects in the Midtown submarket, where over three-quarters of the 2 million square feet occupied occurred, Colliers reported. Visa with 123,000 square feet at 1200 Peachtree St. and Arnall Golden Gregory LLP with nearly 98,000 square feet at 171 17th St. were the biggest Midtown movers in the third quarter, with Novelis committing to almost 90,000 square feet at 1 Phipps Plaza in the Buckhead submarket, according to Newmark. There still remains a tremendous amount of sublease space, more than 550,000 square feet of which Carvana reserved at State Farm’s Park Center Building 1 in Atlanta’s Central Perimeter submarket.
Overall, Atlanta’s office rental rates seem to be holding steady — as did vacancy at 22 percent, according to Newmark — but requests for concessions such as free rent and additional tenant improvement dollars have increased. Tenants do seem to be more willing to make longer-term commitments than in the previous 18 months. Also, there is increased touring activity for smaller vacancies.
With return to office approaches and schedules still being figured out, as well as the aforementioned glut of sublease space, new office development in Atlanta should continue to taper off. Newmark reported no new construction starts in third quarter and one completion — Selig Enterprises’ 679,000-square-foot 1105 West Peachtree that will be anchored by Google. The firm also reported 16 buildings still in progress totaling 3.4 million square feet and coming in at just under two-thirds preleased.
Colliers reported strong volume in the third quarter for Atlanta’s office investment sector with another $1 billion transacting, the second consecutive quarter activity surpassed the $1 billion threshold. The record price per square-foot of more than $800 achieved for the sale of 725 Ponce, a 372,000-square-foot office property that opened in Midtown’s Old Fourth Ward district in 2019, to local REIT Cousins Properties certainly reflects healthy demand for high-quality assets in Georgia’s capital city.
The future of Atlanta’s office market looks bright, both from a near-term view of projects and tenant commitments and the macro-economic outlook with business continuing its return to the office and normalcy. Tenants can lock in great deals right now and ride the favorable terms throughout the economic rebound.
Overall, Atlanta’s relative affordability, favorable climate, burgeoning tech power and labor talent, coupled with Georgia’s business-friendly environment, continue to make it a very attractive market.
— By Jeff Pollock, Owner and Managing Principal of Pollock Commercial. This article originally appeared in the October 2021 issue of Southeast Real Estate Business.