Atlanta’s Office Market Trending Upward as Workers Set to Return En Masse
Following a challenging year in 2020, momentum in the Atlanta office market is beginning to trend upwards. The COVID-19 pandemic forced office users and owners to sideline their business plans and made tenants reevaluate their office needs. As government restrictions have lifted and vaccines for COVID-19 have become widely available, many companies in Atlanta are going back to the office and the “new normal” for the workplace is here.
There have been several notable office announcements made in Atlanta this year. Two large technology corporations announced they were expanding their plans for major hubs in Atlanta, and companies including Adecco and Minute Maid announced plans to make Atlanta their headquarters or a hub. In total, there have been over 20 major relocation or expansion announcements in the past year, accounting for more than 3 million square feet of recent or anticipated near-term absorption.
Atlanta’s most significant office lease in 2021 has been Global Payments’ 206,542 square-foot commitment at 5995 Windward in the North Fulton submarket. Other notable leases include Soliant Health’s 87,419-square-foot deal at Summit at Peachtree Parkway in the Peachtree Corners submarket and ServiceMaster’s 53,440-square-foot lease at One Glenlake in the Central Perimeter submarket. Other companies including Centene and Universal Tax have renewed their office leases, which is a positive sign for the region’s office recovery.
While the market is still recovering from the pandemic’s impact, there is an uptick in leasing momentum across the metro area. Absorption has increased by over 700,000 square feet so far this year and will continue to grow as new-to-Atlanta companies, primarily from the West Coast, move into the area.
Areas like south Midtown and east of Ponce City Market, which are near Georgia Tech, are seeing high interest from companies looking to attract young talent. These companies are evaluating their post-pandemic workplace strategy, which almost all include plans for accommodating flexible workspace.
However, these same companies aren’t shying away from signing long-term leases, which validate Atlanta’s long-term outlook.
CBRE’s recent Investor Intentions Survey highlighted the capital markets imbalance between eager investors and a lack of attractive investment opportunities across the United States, including in Atlanta. However, Atlanta’s strong capital demand, economic strength and emergence as a tech hub are fueling the re-ignition of the city’s office market.
From 2017 to 2019 there was an average of 45 office transactions each year, but in 2020 this figure dropped to a total of 23 office transactions. While the total office sales volume in 2021 remains significantly below the historical market average, there is currently over $1.6 billion on the market or under contract — more than double the total office sale volume in 2020. These offerings feature high-profile buildings including Anthem at Tech Square, One & Two Ravinia, One Overton Park and Twelve24.
Investor interest in Atlanta’s office market continues to build, and numerous new capital sources — both domestic and offshore — have identified the Southeast hub city as a target for future office investments. Additionally, the debt markets, which were significantly constrained during 2020, are becoming more liquid and willing to finance office acquisitions in Atlanta.
Flight to quality
Before the pandemic, there were established migration trends within the country as people and companies began moving to regions with a lower cost-of-living and lower business operating costs. The pandemic accelerated these trends as many people left high-density cities in favor of markets across the Sun Belt, with Atlanta being one of the most popular destinations.
According to CBRE Research, Atlanta had the fourth-highest population increase of all metropolitan statistical areas in the United States between 2010 and 2020. Over the next five years, Atlanta is projected to have the second highest population growth in the country.
A survey from KPMG found that Atlanta gives employers the lowest business costs in addition to access to a very large and diverse talent pool. Companies have taken note of this flight to quality, as shown by the numerous headquarter and relocation announcements so far in 2021.
As people continue to move to Atlanta for a high quality of life, offices will need to adapt as well. It’s nearly impossible for any company to predict how they will utilize their office space a year from now. The biggest question in this regard is whether employees will return to the office full-time, or if they return in a hybrid office/work from home capacity.
Companies may choose to take additional square footage so that employees are able to maintain social distance when they are coming in every day. Alternatively, they may choose to take less space and spend more capital making renovations to the space so that employees who work remotely a few days a week will still want to come into the office.
— By Will Yowell, Vice Chairman, and Jeff Keppen, Executive Vice President, CBRE. This article originally appeared in the May 2021 issue of Southeast Real Estate Business.