These haven’t been the easiest times to maintain optimism or even a somewhat sunny outlook, which is a crucial characteristic for those of us who lease office properties in Atlanta or anywhere else in the United States. Everywhere we turn, we’re constantly pounded with negative economic news as the pillars of American industry teeter and equity markets gyrate. But unlike the frozen credit markets, at least the reeling equity markets aren’t completely stagnant.
We’re starting to see signs of life, and the main question on everybody’s mind is have we hit bottom? Let’s hope so. There are a few early indicators pointing up, and long-term prospects suggest that metro Atlanta can maintain the growth that transformed the city during the past 30 years. First, Jones Lang LaSalle research has found that metro Atlanta’s office markets, including sublease space, absorbed 182,432 square feet in the first quarter of this year. That would’ve been a bad quarter in 2006, but coming off a year where the office market had negative net absorption of more than 850,000 square feet, we’ll take it. Unfortunately, the urban markets — Buckhead, Midtown and Downtown — posted negative net absorption of 47,640 square feet in the first quarter. Atlanta’s suburbs absorbed 230,000 square feet, with direct vacancies hovering at 17.6 percent.
As an added bonus, and unlike other downturns metro Atlanta has experienced, current construction in suburban Atlanta is negligible: 108,700 square feet in a 76.7 million-square-foot market. Downtown, too, has no new construction. On the other hand, Midtown and Buckhead have the preponderance of metro Atlanta’s new office construction. Midtown’s Atlantic Station and 12th & Midtown mixed-use developments have more than 1.2 million square feet under construction, but each property has significant preleasing. The same is not true for Buckhead, which has more than 2 million square feet under construction and lacks preleasing. This is a headache not only for the leasing agents of the new developments but for the existing properties as well. Buckhead developers — Duke Realty, Cousins Properties, Tishman Speyer and Crescent Resources — are among the most stable in the country, but a lack of preleasing has to leave them anxious, especially in a submarket where the average tenant size is approximately 7,000 square feet.
Still, there are plenty of large office-space users evaluating the market. Alston & Bird’s lease expires in 2013, and the law firm submitted RFPs in March for approximately 400,000 square feet in a new building. Fisher & Phillips’ lease expires in 2010, and the firm is on the hunt for 50,000 to 60,000 square feet in Midtown and Buckhead. KPMG, too, seeks about 150,000 square feet in Midtown or Buckhead, while Marsh is in the market in Buckhead for approximately 140,000 square feet. Another law firm, Hawkins & Parnell, seeks approximately 70,000 square feet in Midtown or Downtown, while SunTrust is reportedly evaluating downtown office properties in its search for more than 200,000 square feet.
As we fight through the current market, we’re finding more tenants signing short-term leases, which are perfectly fine, especially for second-generation space. While tenant-rep brokers would like to lock in longer-term deals because of unprecedented opportunities, their clients’ survival instincts push toward shorter terms. For owners and landlords, this means less capital outlay, less free rent, lower commission payments and the opportunity to reset rates in 3 years when, hopefully, we’re on the other side of this moribund economy.
Tenants aren’t disappearing, as they did in the aftermath of the dot-com bubble. They may be struggling, but they’re coming to brokers early to restructure and extend their terms or work out options for subleasing space and, most important, they are still paying rent.
— Jeff Bellamy is regional director of Jones Lang LaSalle’s Atlanta office.