Atlanta Office Market Survives 2008 with Positive Absorption

Despite the poor fourth quarter results and bleak economic news, Atlanta’s office market ended 2008 with positive absorption of 391,300 square feet–but that’s down more than 2.4 million square feet from the 2.9 million absorbed in 2007, according to figures from Atlanta-based Richard Bowers & Co. The forth quarter saw a negative absorption 411,900 square feet–the first quarter of negative absorption in the market since the first quarter of 2006, according to a Richard Bowers & Co. fourth-quarter 2008 and year-end Atlanta office market report. “The first quarter of negative absorption indicates we have a market in flux,” David Morgan, a broker in the office properties division of Richard Bowers & Co, told CPN. “That is to say we see some slowing in the amount of space that companies are ready to commit to leasing. My guess is that many groups see the general economic climate slowing and these companies are looking for ways to reduce the outflow of cash. We have just finished a year with many uncertain events from the cost of energy and credit to the settling of the political contest. Ultimately, all of this filters into the amount and price of office space.” For 2008, the urban corridor significantly outperformed the suburbs with 308,900 square feet of positive absorption in the urban corridor and 82,300 square feet in the suburbs, according to the report. Downtown showed the greatest positive absorption for the urban corridor by more than 350,000 square feet at a total of 374,640 for the year, second in the Atlanta market only to the I-285/GA 400 submarket’s 376,800 square feet. The I-285/I-85/Northlake submarket absorbed 193,360 square feet, followed by the NE Expressway-North submarket at 120,080 square feet. Over the past year, vacancy rates have edged up nearly a full percentage point from 15.48 percent in the fourth quarter of 2007 to 16.31 percent for fourth quarter of 2008. Average quoted rental rates have increased from $21.15 to $21.66 over the same time period, the report stated. While the effects of the global economic slowdown contributed in part to an increase in vacancy rates despite relatively few deliveries in 2008 (a slowdown not foreseen one year ago), average rental rates have indeed increased, though not by as large a margin as anticipated, the report stated. As for the outlook for 2009, look for a bit of caution as many companies continue to cut costs and look for available credit sources, Morgan said. “Atlanta is positioned better (than other metropolitan areas) because our region has a balanced service economy. We are not tied to a particular industry and as a region, we are situated within two hours to almost two-thirds of the nation’s population. In the second half of this New Year we may begin to see businesses and banks taking a more aggressive stance related to expanding their market share.” The expectations of the new presidential administration and lower fuel costs will boost confidence in the business climate, Morgan added. “This is a great time to be in the market if you need to extend or renew an office lease. The strongest landlords will have access to funds for tenant improvements and concessions. Look for leasing activity to start out slowly this year but ramp up quickly later in the year as pending federal assistance both in the finance and infrastructure arenas begins to take affect,” Morgan said. “Markets with the highest volume of available class A space should do well, along with the urban corridor and downtown in particular given its plethora of amenities and transportation access points. Traffic congestion around major retail centers in both the urban and suburban submarkets may become a more important consideration for companies considering relocation, particularly for new deliveries in those areas.” Richard Bowers–the largest independently owned commercial real estate firm in metro Atlanta–was established in 1980 and represents clients and owners in office, retail, and industrial sales and leasing, land and investment sales, financial services, development, relocation services, interior design and construction management, and property management. In 2007, the company completed 323 property sales and leasing requirements totaling 2.67 million square feet of space.