Tech Firms are Bringing Atlanta’s Office Market Into the Modern Age
Atlanta’s office market offers key factors that are harder to come by in other top markets: stability and top universities. Because the city is so diverse, it is not reliant on any one type of business for survival. It’s less volatile, which is one factor that has allowed us to come back from the Great Recession, although slowly, in a more firm and healthy fashion.
In line with the majority of the country, Atlanta is currently a landlord’s market. With continued occupancy gains and a shortage of new product, rents are increasing and will continue to do so until additional Class A product delivers and the price gap between existing buildings and new construction gets smaller. Overall office vacancy in Atlanta is as its lowest point in 14 years, with strong growth in rental rates. However, Atlanta still offers the best deal overall, as tenants, developers, owners and investors are able to take advantage of its low cost of living and operating costs, excellent quality of life and a rich local talent pool.
Driving the Atlanta office market, we see the technology, advertising, media and information (TAMI) sector. CBRE recently released two tech-related reports that rank the top tech talent markets and the top tech momentum markets. Atlanta placed highly in both. Atlanta appears to be an emerging tech market, which compares favorably with other large metros and is about one-third of the cost of similar space in New York or San Francisco.
The increase of tech activity in the city and surrounding metros has changed the dynamics of Atlanta’s office market. In Atlanta, the technology job growth rate has risen 7.8 percent between 2012 and 2014, above the 5.7 percent national rate. The tech ecosystem has put the city on the map with more established markets like San Francisco or Austin. We are also seeing some of the most productive and successful locations transform into hubs like Atlantic Station, Ponce City Market, West Midtown and parts of Buckhead, where creative users cluster, and that has driven more street retail and multifamily activity. It has changed the way space is utilized, with open and flexible floorplans at the forefront of “must haves.” The Millennial generation and its tech employers are looking for the play of imagination in the buildings they inhabit. Both expect spaces that can be reshaped on the fly to suit their changing needs, with amenities that cater to their social nature and their urban sensibilities.
Atlanta has proven to be a destination for large creative companies, but a closer look shows that the city also provides the right environment for the less-established firms. In 2013, tenants occupying less than 10,000 square feet in the creative and tech scene accounted for 204,898 square feet of new office leases in metro Atlanta. By 2014 that number was 339,619 square feet and in 2015 through the end of the second quarter, tech accounted for 175,884 square feet. This speaks to a consistent demand trend that appears to be rising for startups and smaller TAMI companies.
Topping the list of Atlanta’s assets, particularly for creative firms, is the access to local talent from Georgia Tech and other top universities. Georgia Tech has not only been a top university for developing this kind of talent in Atlanta, but the institute has risen in the national rankings, competing with the top technology schools in the country.
Intown markets are performing the best, and young talent lives and prefers to work intown. Today’s most desirable employee wants walkable, connected environments with access to public transit and the Atlanta office market is answering. Tech and creative companies are drawn to the more dense areas, placing Midtown, Buckhead and Downtown in the right position to cause a snowball effect and incubate creative ecosystems. Coupled with amenities, the world’s busiest airport and the good quality of life, tech companies have named Atlanta as a place to put their flags in the ground.
Whether it’s the intown markets with a walkable lifestyle or the suburbs such as Gwinnett or North Fulton, where more established creative firms have laid roots due to top school systems, low cost of living, and attractive residential options, Atlanta has the infrastructure in place for both to succeed.
— By Jeff Keppen, Senior Vice President, CBRE. This article originally appeared in the October 2015 issue of Southeast Real Estate Business. CBRE’s Suzanne Maynard, Workplace Strategy, and Dan Wagner, Research, contributed to this article.