Experts: Atlanta Office Sales Volume To Slow In 2017
Office investors may still be hungry for office — after all, they spent $4B in the metro area last year on that asset class alone — but their plates may be more skimpy this coming year.
For the second year in a row, at least $4B in office assets traded in Atlanta, ahead of Dallas/Fort Worth in secondary markets in the U.S., according to a recent report by JLL.
Last year alone was capped with some banner trophy office sales:
- Oaktree Capital Management/Banyan Street Capital's $268M buy of 191 Peachtree Tower from Cousins Properties.
- Shorenstein Properties' $220M purchase of the iconic Bank of America Plaza from special servicer CWCapital.
- Preferred Office Properties $210M purchase of Three Ravinia Drive in Central Perimeter from CBRE Global Investors.
- Starwood Capital Group's $300M buy of One Atlantic Center from a fund controlled by Hines Interests.
- Germany-based Union Investment Real Estate's $150.5M buy of 10 10th St. from Banyan Street Capital/Oakmont Capital Management partnership.
- Sumitomo Corporation of Americas' return to the Atlanta market with its $222.5M purchase of Atlanta Financial Center (below) in Buckhead from Hines.
- Rubenstein Partners' (in a JV with AIG) buy of Sanctuary Park in Alpharetta for $265M from J.P. Morgan.
And those were just the highlights.
“Atlanta is still seen as a very attractive office investment market, primarily because we've been disciplined this cycle,” said CBRE's Will Yowell.
He and other experts said Atlanta has largely been viewed as a value-add opportunity for investors, hinging not only on the minuscule number of new office projects under construction (at least by Atlanta's very prolific historical standards), but also by a factor that has been absent for much of Atlanta's office market history: actual rental rate gains.
Atlanta just represented the tip of the iceberg of a second-tier U.S. city renaissance when it came to big, institutional real estate funds and foreign investment dollars. In Q4 2016 alone, half of all office building transactions in the U.S. happened in cities like Atlanta, Dallas, Philadelphia and other major metro hubs outside of major gateway cities like New York or Los Angeles, according to JLL. Towers in those cities also accounted for more than 35% of all office sales during 2016.
The activity reached Atlanta's suburban office market, which saw a number of properties trade as well. “It looked like investors who wanted to be in this market were pursuing whatever they could, as long as it fit into their reasonable investment box,” said JLL's David Tennery.
But so much has traded in Atlanta — half the stock of Atlanta's Class-A office product in the past three years, according to JLL — experts say it is hard to imagine the metro area will see the volume of sales we saw in the past two years.
“I do think the volume will be lower in 2017,” Yowell said. “These assets just don't turn over every other year.”
“There's still some product out there that hasn't traded, and even some that has traded may come back out,” Avison Young's Matt Tritschler said.
He recently brought 3100 Breckinridge Blvd., a 253k SF suburban office park in Duluth, to market. With investors still circling Atlanta, owners are polishing up assets and getting them ready for market. Landlords can still make the case that Atlanta's solid fundamentals mean there is still runway with rent growth.
“I think there are some people who want to take some chips off the table,” Tritschler said.
Already, Five Mile Capital has put 100 Peachtree (here) up for sale with CBRE. And, most recently, CBRE Global Investors put 271 17th St., the BB&T-anchored trophy tower in the heart of Atlantic Station in Midtown, on the market with Eastdil Secured.
Other buildings out for sale, according to Real Estate Alert, include Northwest Mutual's Piedmont Center North and the Harbert Management/The Simpson Org. co-owned 730 Midtown building. And just this past week, Cousins Properties officials told stock analysts that the company intends to put the American Cancer Society Building at 250 Williams St. and the Emory Point mixed-use project on the market sometime this year.
Stream Realty's Simon Arpiarian said for investors buying into the latest flock of office buildings, it is a bet that rents will still rise, and that supply of new projects will be held to a minimum.
“Even if we had a wave of spec development,” Arpiarian said, "that's going to take a couple of years to deliver. And that's not going to happen. It's difficult to get financing for spec."
Still, there is a risk. True value-add is getting more difficult to come by in Atlanta.
“I would say in Atlanta, for the most part, the steals are gone,” Tennery said. "Yet there remains some very good buys."
And there is another big bet being made by buyers: Atlanta will not have a recession anytime soon.
“There's just kind of that concern about how long this recovery has gone on. When's it going to end or slow down? So you have to be really right about your thesis about what you're buying,” Arpiarian said.
CORRECTION, FEB. 14, 2:45 p.m. ET: JLL was hired to lease The Park at Perimeter Center East. A previous version of the story incorrectly stated JLL had been tapped to sell it. The complex is not for sale. Also Atlanta led the nation in Class-A office sales volume ahead of Dallas, not second to, Dallas.