From Perimeter to Peachtree, Atlanta’s Office Market is Gaining Momentum
8West. Star Metals. Coda. These are the some of the names of Atlanta’s biggest office developments and the city’s largest undertakings. Measuring more than 1 million square feet of Class A office space between them, Midtown Atlanta’s skyscraper scene is about to be drastically altered.
The gravity of these major mixed-use properties, along with the allure of top talent at nearby universities like Georgia Tech, gives the Midtown submarket an increase in both developer activity and price-per-square-foot rates. The Midtown/Perishing Point Class A office space average is $35 per square foot, higher than the Atlanta-area average of $29.79 per square foot.
However, buildings like Star Metals and Coda are not designed with just any tenant in mind. Speculative developments in the Atlanta market have come to a standing halt as most offices in the region are now built to fit a specific company’s needs, rather than spaces built with the hope the right tenant will come along. Most larger new developments are either a build-to-suit for a specific tenant or are anchored by a tenant that is taking up the majority of the space.
Additionally, with lower required returns from REITs and the private sector, finding capital is not nearly as competitive as finding the right piece of real estate. While capital will always play a huge role in how far the developer is able to leverage the project in order to get shovels in the ground, ultimately the tenant and the site determine if a development will be successful or not.
Tenants control most of the Atlanta office market, leaving only 16 percent of Class A space vacant at the end of the first quarter. Drawn to locations near roadways and transit, companies are searching for developments with collaborative areas, walkable shops, restaurants and an overall “cool” factor, as well as attractive amenities and access to powerful connectivity.
As technology advances, the world has become smaller and more congested. With the
increasing population moving back into the city, developers have followed these trends while organizations are having to become more competitive regarding their accessibility and connectivity for talent acquisition and retention.
Companies are flocking to Atlanta’s live-work-play developments, which give employees opportunities to join coworkers for dinner or meet spouses and friends at entertainment venues. In Atlanta, these mixed-use developments are not only located in urban settings, but also spread throughout suburbia, seen in places like The Battery in Cobb County or Avalon in Alpharetta. In a city dubbed by the U.S. Census Bureau as the third-fastest-growing metro area in the nation, it makes sense tenants would choose to spread out.
Midtown is showing signs of being an emerging epicenter, but there is a strong case to be made that there is no “best submarket” for Class A office space. The Class A office space will go where the tenant wants to be.
Despite all the growth in Midtown, the largest submarket by asset value is Central Perimeter, where there is more than $7.8 billion worth of office space. The submarket is followed by Midtown at $7.2 billion and Downtown at $7 billion.
As a whole, Atlanta’s office market is thriving. Last year, there were 173 commercial real estate transactions totaling $3.2 billion. More than half of the metro’s development pipeline is leased, and Atlanta has a rate of 391,398 square feet in positive net absorption. With a citywide unemployment rate of 4.3 percent and a healthy economy fueled by over 70 local higher education institutions, office tenants are hiring from Atlanta’s ever-growing population of 5.9 million residents.
An educated workforce is not the only draw to building up Atlanta’s office scene. Notable accolades from Area Development and Forbes call Georgia the “top state in the U.S. for doing business” and Atlanta the “hottest commercial real estate market for investors.”
The city’s top rankings compliment an ideal location in the heart of the Southeastern United States, and the mild climate and [low] cost of living, combined with tax incentives, make Atlanta a great place for corporate relocation and expansion of local businesses.
The world’s most efficient airport, Hartsfield-Jackson Atlanta International Airport, reaches 80 percent of the U.S. market within a two-hour flight, and the same consumers can be reached from Atlanta within a two-day truck drive. Pair that accessibility with the nation’s fastest-growing port, the Port of Savannah, and Atlanta provides a recipe for a prosperous commercial real estate market.
With powerhouse companies like WeWork and DataBank moving into Atlanta’s new office developments alongside Fortune 500 companies and technology startups, it’s no secret why Atlanta is quickly climbing up among the ranks of America’s largest and most successful office markets. And with a rapidly changing skyline, Atlanta’s office growth is definitely a force to be reckoned with.
— By Mike Berens and Claire Blevins of NAI Brannen Goddard. This article originally appeared in the May issue of Southeast Real Estate Business.