Atlanta Office Market Slows but Stays Ahead

Office leasing is starting to slow around the United States , but the Atlanta market is faring better than most, a Grubb & Ellis Inc. researcher told CPN. “Atlanta overall seems to be faring pretty well despite some of the concerns about the economy,” noted Dan Wagner, research manager in Grubb & Ellis’ Atlanta office. “When we’re in a slow economic growth period, Atlanta always seems to experience a shallower type of slow growth.”Grubb & Ellis research for Atlanta shows positive absorption of about 50,000 square feet, Wagner said. “That will probably change as new buildings in Buckhead deliver but as of today we’re just about at equal absorption levels.” Grubb & Ellis’ numbers are more positive for the market than those contained in the Colliers International second quarter report for Atlanta. The Colliers report, which noted the overall vacancy rate is up 0.6 percent over this time last year, puts year-to-date absorption at just under 300,000 square feet. “Office demand has slowed dramatically,” the Colliers survey stated. “ The ‘wait-and-see’ approach by companies continues to have its affect on office leasing in Atlanta. Taking these factors into account, forecasted office absorption in 2008 is now expected to end the year between 500,000 to 1 million square feet.” Colliers reported that vacancy increased by 1.16 million square feet between the first and second quarter of 2008, mainly due to a 14 percent jump in sublease availabilities and 1.3 million square feet of new space that hit the market. Looking ahead, though, Colliers projected that vacancy and rental rates should stabilize by the end of 2008. Wagner also noted that sublease space had risen in the first part of the year, but added that several business expansions had countered that number a bit. “The overall trend is that businesses are downsizing but in Atlanta you have some businesses that are continuing to perform well,” he said. In the Central Perimeter submarket, Newell Rubbermaid moved into its new 350,000-square-foot headquarters at 3 Glenlake during the second quarter, Wagner said. Quintiles Transnational Corp. more than doubled in size when it moved into 184,000 square feet at 1600 Terrell Mill Road in the Cumberland/Galleria submarket. The Midtown submarket saw overall vacancy drop by 2.9 percent but had several highlights including the Georgia Department of Transportation beginning its phased move to 600 West Peachtree St. from a government-owned building, Wagner said. The DOT will occupy 282,000 square feet there by the fall. Also in the Midwest submarket, Invesco moved into 177,700 square feet of space at Dewberry Capital’s Two Peachtree Point. The Downtown office submarket posted a negative overall absorption for the second quarter with a loss of about 90,000 square feet. But there were bright spots, including Cushman & Wakefield taking the seventh floor at 55 Allen Plaza. == One Downtown building that has seen active leasing recently is One Ninety One Peachtree Tower (pictured). Cousins Properties reported it has signed new or expanded leases totaling more than 75,000 square feet at the landmark 1.2 million-square-foot building it has owned since 2006. Deloitte added 52,000 square feet to the 260,000 square feet it already has at the tower. Winter Construction leased a full floor with 25,000 square feet after leaving 1330 Spring St. in Midtown. “When all signed leases occupy, the building will be 72 percent occupied compared to 20 percent occupied when we bought the building in September, 2006,” a Cousins Properties spokesman told CPN. “Cousins has done an excellent job on leasing,” Wagner said. “There is a little bit of negative absorption showing for Downtown but One Ninety One Peachtree is definitely the exception to the rule down there.” The area to watch in the coming year or so will be Buckhead20, where about 2 million square feet of Class A office space is under construction. Regent Partners recently delivered 3344 Peachtree, which has 490,800 square feet of space, according to Wagner. He said it is about 50 percent leased, “which is certainly positive for that particular building.” Next year, though, at least four buildings will be delivering in the spring and summer – Two Alliance Center , Terminus 200, 3630 Peachtree and Phipps Tower. “You’re gong to see these owners fight for tenants,” Wagner said. “There’s definitely going to be some free rent. They’re going to have to offer these kinds of incentives.” Wagner said some of the older office buildings in Buckhead may lose tenants next year as some companies move to the new projects.