4 Predictions For Atlanta CRE In 2021
Metro Atlanta's commercial real estate industry may be in for a smoother ride this year as the economy and society hope to transition from pandemic into new normal.
Office landlords are likely to see new deals as businesses flock to lower-cost markets. Hotels will likely see more warm bodies in their beds as major regional events gear up again after their 2020 hiatus, and changes to shopping habits will continue to drive market upheaval not only in retail, but in industrial as well.
Those are among the predictions commercial real estate experts are making for the coming year. And with a Democratic sweep of both Congress and the presidency, a modicum of certainty is underpinning the decision-making in corporate C-suites, which will benefit Atlanta's CRE market.
“The predictability of post-inauguration policies will give property owners and space users greater visibility into the next two years,” Transwestern East Region President Bruce Ford said in an email. “[Certainty] gives them higher degrees of confidence in planning their space and acquisition strategies.”
Other commercial industry leaders shared predictions for 2021, mostly tinged with optimism after a year of pandemic lockdowns and social upheaval.
1. Corporate Migration Continues To Flow
While not a new trend, experts expect that companies will continue to flock to the Sun Belt — especially Atlanta — from the West Coast and the Northeast, where housing affordability and higher taxes are reaching breaking points.
“It's almost corporate malfeasance for an executive, a C-level executive at a Fortune 500 publicly traded company in San Francisco or New York, not to be at least evaluating or considering or studying a potential move,” The Boyd Co. principal John Boyd told Bisnow.
Boyd, who is a national site selection consultant for companies, said Atlanta is definitely on the radar of Fortune 1000 companies that are leaving cities like New York, San Francisco and Chicago, chasing lower costs of living and a better quality of life. The recent Senate election results in Georgia could bolster the metro area in the eyes of companies as well, Transwestern's Ford said.
“To the extent that Georgia is now perceived as a purple state by the rest of the nation, we think we will be even more attractive to some companies that might have been cautious in the past, while remaining attractive to the same businesses that have always appreciated the state’s great bond rating and favorable business taxes,” he said.
The migration of office-using entities may not be limited to the private sector either, Boyd said. Given the push that Atlanta Mayor Keisha Lance Bottoms and former Georgia gubernatorial candidate Stacey Abrams made on behalf of President Joe Biden and Democrats, Boyd said the new administration might look to move federal offices to the metro area.
“While it may not be on the scale of LBJ delivering the NASA headquarters to Houston, the Atlanta market is in a great position to attract new federal jobs from the costly Washington, D.C., area,” Boyd said.
2. Office Leasing Will Come Back, And In New Places
One major effect of the coronavirus pandemic has been to freeze C-suite's real estate decision-making process, especially as their employees have shown how well they can work from home.
If a company's office lease was expiring last year, executives likely just signed short-term renewals to delay a more serious decision, Cushman & Wakefield Executive Director Ken Ashley said. That means office brokers will be busy during the second half of this year and into 2022.
“Tenant reps will have a smile on their faces in the second half of '21, because transaction activity is likely to increase,” Ashley said. “Today, executives are making the smallest decision possible, which means in real estate terms, they're extending leases for a year or 18 months. When you have thousands of executives doing the same thing, eventually the chickens are going to come home to roost.”
But companies will be more focused on locating offices in trendy neighborhoods versus more traditional central business districts, S.J. Collins Enterprises partner Jeff Garrison said.
Garrison, whose firm is developing The Interlock mixed-use project in West Midtown, said what started with Midtown's rise in prominence has spread to nearby neighborhoods on the east and west sides of the submarket. That momentum will only pick up speed this year, he said
“In the last 30 days, I've probably toured 300K SF of office space,” he said. "And during that same period of time, I think you'd be hard-pressed to find another building in Downtown with that level of activity."
Midtown and its surrounding neighborhoods will remain the main draw for technology and financial tech firms given the pipeline of talent coming out of Georgia Tech, Ashley said. Apple's recent announcement it would create a $25M Propel Center on the campus of Atlanta University Center, with plans to educate students at the collection of Historically Black Colleges and Universities on artificial intelligence, machine learning, app development and other technological skills, will only increase Metro Atlanta's supply of valued tech talent.
With the war for talent — especially among skilled tech workers — very much still being waged, companies will continue to flock to the Midtown and its environs, Ashley said.
“I don't have to wear a mock turtleneck to feel cool in Midtown,” Ashley said.
3. Hotels Are Down, But Not Out As Event Bookings Surge
Atlanta's hospitality industry is expected to continue on life support through 2021. But a number of recent developments are likely to help hotel operators stay afloat as more people get the coronavirus vaccine, including further government stimulus targeted specifically to the travel and lodging industries, Hunter Hotel Advisors CEO Teague Hunter said.
Hotel occupancy rates in Atlanta likely ended 2020 just shy of 40%, The Atlanta Journal-Constitution recently reported. But some hotel experts now say a wave of defaults will likely be delayed by federal intervention.
“Banks are generally not eager to take assets back,” Hunter said.
While hotel performance is a long way from returning to pre-pandemic levels — with revenues not projected to return until 2024 in many cities — major conventions and events in Atlanta are slated to return this year, buoying hotel occupancy.
Twenty-two major events are scheduled in Atlanta this year, up from just 10 that managed to be held before the pandemic and after the state's lockdown orders were lifted, according to the Atlanta Convention & Visitors Bureau.
“We haven't changed as a species in 10 months, we still want to get together,” Ashley said. “If you talk to conference planners, which I have, they're feeling pretty optimistic about the second half of this year.”
Among the events scheduled thus far, each booking at least 2,500 room nights, include the Thomas P. Hinman Dental Meeting in March, the American College of Cardiology Annual Scientific Session in May, the Major League Baseball All-Star Game in July, MomoCon and Dragon Con in May and September, respectively, and Chick-fil-A's Kickoff Games in September and the Peach Bowl in December.
Hunter said that the vaccine rollout will remain instrumental in ramping up confidence in travel again, which is still key for Atlanta hotels.
“Based on what we are hearing and seeing, coupled with our globally recognized international airport, we are optimistic on future booking pace,” he said. "We are also hopeful increased infrastructure spending under the new administration will be a catalyst for future business in the city."
4. COVID Causes Permanent Retail Changes
Drive-thru lanes, more patio spaces and picking up groceries and sundries curbside — hallmarks of a life in a pandemic — are here to stay in Atlanta retail real estate this year.
The coronavirus has put an emphasis on customer convenience and social distancing, but it also has solidified shopping habits that will likely continue on even after COVID-19 is in the history books, especially when it comes to fast-food and casual dining, experts said.
“Even fast-food, there's fast-food that are doing better than even pre-COVID numbers, strictly through the drive-thru,” Ackerman & Co. Retail Vice President KB Yabuku said.
Retail leasing is likely to be subdued until the third quarter, experts say. But the potential for further stimulus under a Biden administration is prompting landlords to work with their retail tenants to hold out longer, Yabuku said. That could lead to pent-up demand in leasing for those retailers who thrived during the pandemic.
“Once the vaccine gets fully deployed ... then I think we're setting ourselves up for a pretty strong third quarter going into the end of the year,” he said.
Even brick-and-mortar retail demand may come back thanks to the work-from-home movement, Skyline Seven Real Estate Senior Vice President Ryan Holzer said. People working from home are more apt to want to get out of the house, and shopping is a natural destination for them, Holzer said.
“I was going out to pick up lunch and get coffee more during the workday than I was doing previously because I just needed to get out a little bit,” he said. "I have no doubt that people will return to the office in some manner. Will it be to 100% of where we were Jan. 1 of '20? No, but if it is even 20% remote, that's 20% more people who have more time to spend in retail.”
JLL Vice President Molly Morgan said Metro Atlanta's burgeoning system of pedestrian trails, including the Atlanta BeltLine in Midtown, the Big Creek Greenway and the Alphaloop, both in North Fulton County, will also continue to attract retailer interest.
“I also think we are going to continue to see trail-oriented development be a big thing,” Morgan said. "That was a trend before COVID, but I think it will now increase."
The online shopping habits developed by baby boomers during the pandemic also will have a ripple effect on industrial real estate as retailers strengthen their e-commerce platforms, especially around the metro area, to promise faster deliveries.
“We're just getting into the apex of the growth of e-commerce,” Transwestern Development Co. partner Greg Boler said. “Baby boomers were the last generation to adapt to e-commerce. Once you adapt to e-commerce, do you ever really go back? It's become a regular thing now. It's a lifestyle change.”