The Atlanta office market’s decline in vacancies continued in the third quarter of 2014, with the quarter ending at 17.9 percent, according to a report by Cushman & Wakefield. This rate is the first drop below 18 percent since the first quarter of 2009.
These gains in office occupancy represent a 130 basis point decrease in vacancy from the end of 2013 and a 150 basis point decrease year-over-year.
The research presented by Cushman & Wakefield showed healthy absorption totaling more than 450,000 square feet during the third quarter of 2014, giving the Atlanta market 11 consecutive quarters of net occupancy gains. This quarterly absorption brings the total year-to-date to 1.7 million square feet, an increase of 54 percent compared to the pace during the same period in 2013.
“Atlanta is seeing consistent momentum in terms of tenant activity and absorption,” says Logan Menne, the research manager of Cushman & Wakefield. “As vacancy continues to tighten, the supply of existing available options is becoming more and more limited. Additionally, due to the increased demand from tenants in the Atlanta market, many landlords are beginning to increase asking rents, particularly in high-demand submarkets like Buckhead and Central Perimeter.”
Several large lease signings in the third quarter of 2014 contributed to the absorption of office vacancy in the Atlanta market, including Vonage’s 80,000-square-foot sublease at The Towers at Wildwood Plaza in the Cumberland submarket; Veritiv’s 68,300-square-foot space at Northpark Town Center in the Central Perimeter submarket; and Dixon Hughes Goodman’s 51,000-square-foot lease at 191 Peachtree in downtown Atlanta.
The Central Perimeter and Midtown submarkets absorbed the largest amount of Atlanta office vacancy in the third quarter of 2014, 328,117 square feet and 347,218 square feet, respectively.
Pendulum Swings Toward Landlords
Overall average asking rents in the third quarter of 2014 increased 1.9 percent from 2013 year-end, averaging $21.21 per square foot. Overall class A asking rents, according to the report, have also increased 1.9 percent over the same time period to an average of $24.28 per square foot, most notably in submarkets like Buckhead and Central Perimeter.
Leasing activity during the third quarter of 2014 totaled 2 million square feet, adding to the year-to-date total of 7 million square feet, an 11.3 percent increase from the 2013 pace.
The construction pipeline in the Atlanta office market is minimal, but several projects are underway, including Buckhead Atlanta and Alpharetta’s Avalon. Three Alliance, the 500,000-square-foot Class A office tower by Tishman Speyer in the heart of Buckhead, began construction in August. The tower is Atlanta’s first speculative office tower to break ground since 2008. The Ponce City Market project delivered more than 550,000 square feet of office space during the third quarter of 2014 when Athena Health began taking occupancy of its space.
Despite slow activity during the first half of 2014, investment sales during the third quarter picked up, totaling 4.1 million square feet, the strongest quarter for activity in 2014.
Year-to-date, investment sales activity during the third quarter totaled 8.9 million square feet and is still behind the 2013 pace by 13 percent. Key sale transactions during the third quarter included the sale of 171 17th Street in Midtown, which sold to KBS REIT III in August for $132.5 million. Given these encouraging signs, Cushman & Wakefield expects a continued increase in transaction activity during the second half of this year.
— Scott Reid