Transwestern: Office Will Rule 2016
Commodity prices—fueled (no pun intended) by crashing oil pricing. A China economic slowdown. A historic worst start for the Dow Jones. Despite those headwinds, Transwestern's Bo Jackson has a raft of good news to share with the industry during Bisnow's Atlanta 2016 Forecast, Tuesday, Jan. 19, at the W Hotel Midtown.
Bo (right with Transwestern's Clark Dean and Bradley Fulkerson) says Atlanta is traveling a jet stream fueled by three ingredients: strong tenant demand, practically no new office construction and rising rents. Those three factors have never truly played out in Atlanta at the same time in Bo's 30-year career, he says.
According to Transwestern's most recent office report:
- The metro area should add some 60,000 jobs/year for the next few years, one-quarter of which will be considered “premium” jobs that typically staff in office space.
- Overall market vacancy declined to 15.9%, the lowest rate in eight years, with Class-A vacancy rate dropping even lower at 14.2%. It has been 15 years since Atlanta’s Class-A properties saw such low vacancy.
- Nearly 3.6M SF of office was inked by companies, with 914k SF alone in Q4 2015. And it gets more encouraging when 77% of that leasing happened in Atlanta's prime Class-A spaces.
- Asking rents have topped $25.50/SF for Class-A space, one of the highest on record. Even baking in the rest of the office classes in Metro Atlanta, rents were still more than $22/SF.
All of this is leading to a renaissance of office investment from investors who are having “gateway fatigue,” Bo says. With fundamentals signaling the health of Atlanta, the beacon went out in 2015 across the globe, with investors pouring $4.71B into commercial properties here, according to Transwestern, with prices trading an average $165/SF, up 11% from 2014.
That includes more than $2.7B in office trades, such as the pricing high watermark of Concourse Corporate Center (here). But Bo says those rent increases were long overdue. “I think there's a bit of a correction going on to a new reality to this is what it costs to be in a Class-A building in Atlanta,” he says. But at the same time, rents that now in some cases exceed $30/SF are still “reasonable” to tenants who are used to paying sometimes three times that in cities like NY and LA.