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Lease renewals and, in some instances, expansions into larger layouts, are occurring in Atlanta as employers create new jobs. The metro has also landed some plum relocations recently. State Farm and General Motors have chosen the metro as the site for regional headquarters, and the firms will create thousands of jobs during the next several years. Many of the GM jobs are new information technology positions and they are coming here in response to the metro’s highly skilled and educated work force.
As the region becomes an information technology hub in the Southeast, other employers are also adding workers. AT&T has expanded its presence by filling 600 IT positions and plans to hire an additional 1,000 employees throughout the state. Additionally, Airwatch, a mobile software firm, has already hired 200 Atlanta workers and expects to create 600 more positions by year end. Other companies, such as InfoSystems, ExactTarget, PulteGroup Inc. and Spanx, are also planning to expand operations in the metro. Scheduled expansions by these employers and recent additions to payrolls have helped to fill office space that has been vacant since the trough of the recession.
The Atlanta office market will make strides by the end of this year, although vacancy will remain near its cyclical high as operators in suburban submarkets struggle to fill space. With vacancy in the double digits, construction will tilt significantly to build-to-suit space this year. However, even build-to-suit has consequences for competitive office buildings. For example, the completion of the nearly 345,000-square-foot Primerica headquarters in Gwinnett County will create 385,000 square feet of vacant space in 10 buildings the company currently leases.
With no deliveries of large speculative buildings and tenant expansions in existing buildings, however, the office market has started to tighten. The trend of tenants seeking urban office space near primary transportation routes will persist for several more quarters. Suburban submarkets, many of which rely on housing-related, office-using businesses as a source of demand, may not see appreciable improvement until next year.
As Class A operations have led the recovery, institutional-grade buyers will focus on these stabilized properties in major employment hubs. Redevelopment opportunities in Midtown and Buckhead will draw private buyers from the sidelines as the chance to ride up the broader recovery finally entices capital to re-engage.
A limited number of stabilized Class B and C properties will trade with initial yields starting in the 9 percent range, potentially rising into the double digits, depending on property location. Investors looking to finance stabilized Class A and B assets will find non-recourse financing available, though lenders will remain risk averse through 2013.
Investors see somewhat greater risk in suburban properties, and typically demand cap rates starting at 8.5 to 9 percent to execute deals. Private investors are active in the suburbs, as are owner/users, many of whom are using cash or SBA financing to acquire assets. In the urban core, best-in-class properties remain defined by their prime locations near major roadways or MARTA stations, and the presence of either a single-credit tenant or multiple tenants secured under long-term leases. Many of these properties change hands at cap rates varying from the mid-6 to low-7 percent range, depending on the quality of the tenancy. Demand for medical office space is also keen, as investors are attracted to the segment’s defensive attributes and cap rates of around 8 percent.
— Michael Fasano, vice president and regional manager of Marcus & Millichap's Atlanta office