| This Time Last Year…
…I described the Atlanta office market moving like a train sprinting down the track, but could not envision the speed with which it would move. In 2016, this office market train moved with continued stealth, with office vacancy rates dipping to 11.9%, construction cut back to near historical averages, and rates continuing their steady rise to all time highs. All of this points to signs of a healthy market, but what does this information mean to tenants and landlords as they evaluate their leases and businesses in 2017?
Atlanta office vacancy rates in 2016 finally dipped below the 12% mark, which is the mark considered “healthy” for major office markets in the US. Atlanta historically has hovered above that threshold, due mainly to its sprawl and the mobile nature of its population. With a 10.2% vacancy, Midtown is the tightest of the Class A office submarkets, whereas the I-85 corridor is 16.3% vacant and Downtown remains essentially flat at 16.1% vacant. Midtown and Cobb-Galleria NW submarkets lead the way in Class A absorption, with over 568,000SF and 481,000SF of positive absorption respectively. The Central Perimeter, North Fulton and Northlake submarkets had positive absorption results in the Class B office sector.
A major marker of the 2016 Atlanta office market was the rise of the construction cranes! After 7 quiet years, 2016 brought the start and near completion of two stadiums as well as 43 new office projects totaling 4.9 million square feet. Most of these projects - like Riverwood 200 and 3400 Overton in the Cobb Galleria submarket - are already well over 50% pre-leased, and others will be flagship locations for NCR, Mercedes-Benz, HD Supply, Comcast, State Farm and Genuine Parts.
As with 2015, 2016 saw rental rates continue to rise, and the average Class A building quoted rate at YE 2016 was at an all time high of $26.99 per SF. Buckhead is the most expensive place to locate an office, with average Class A quoted rates of $33.85 per SF and buildings like Three Alliance, Sovereign and One Buckhead Plaza quoting as much as $40-43 per SF. Central Perimeter remains a good value at $27.99 per SF, North Fulton checks in at a reasonable $25.24 per SF, and Cobb-Galleria NW rates have risen steadily over the last few years to their current $26.23 per SF. The healthiest submarket, Midtown Class A rates sit at $29.24 per SF. In the Class B sector the rate story is a bit different, with Buckhead and Midtown rates virtually identical at $24.30 and $24.05 per SF respectively and Central Perimeter running just a tad less expensive at $23.41SF. Overall, it remains to be seen how much higher rates can go and yet maintain the positive absorption numbers of a healthy market.
Looking ahead for 2017, the train continues forward as we see the first wave of Class A new spec construction completed, with Three Alliance Center in Buckhead delivering later this quarter and 8000 Avalon in North Fulton delivering in the 2nd quarter. Jackson Healthcare recently announced a new 8 story office tower that will start construction in 4Q 2017, and expect a 40,000SF 2Q campus addition announcement from my client AdvancED.
Stay tuned for updates as the quarters progress, and next month I’ll be covering the challenges of the Atlanta tenant who wants to become their own landlord…
Ted Schwartz is a 26 year Atlanta resident with more than 20 years of experience in corporate office tenant representation focusing the Georgia 400 office corridor. Ted recognizes that successful commercial office negotiations require a deep understanding of the client's current needs as well as the ability to anticipate future growth, identifying and securing a location per client's business model.
Ted Schwartz Partner Joel & Granot Real Estate Dir: (404) 869-2606 Cell: 770) 713-2775
962 Howell Mill Road, NW Atlanta, GA 30318
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