Highway Construction Has Held Central Perimeter's Office Market Back
Office leasing in Atlanta continues to battle the headwinds of an uncertain economic outlook and the struggle to get employees to report to their desks more often, but one submarket is having more trouble than others for a different reason.
Central Perimeter's office buildings have posted some of the worst fundamentals of any Metro Atlanta submarket this year, and the ongoing revamp of the Interstate 285 and Georgia 400 interchange is partly to blame, Regent Partners principal John Bell said at Bisnow’s Central Perimeter event last week.
"We have suffered a little fatigue from the 285-400 project, and that's hurt — that along with Covid," Bell said during the event, held at the Le Meridien Atlanta Perimeter hotel. "We’re probably the last submarket for companies to bring their employees back, and I think a lot of that’s due to that 285 construction."
The $800M interchange project is upgrading more than 4 miles of I-285 and more than 6 miles of Georgia 400, a project intended to save 20,000 hours of commute time each day for the average of 400,000 vehicles that pass through the interchange. But the construction has brought on traffic headaches in the area.
While the project is largely expected to be completed later this year, lane closures, temporary exit lanes and general construction made worse what was considered among the 20 worst bottleneck interchanges in the U.S. although it's not the worst in Atlanta. That title goes to the infamous Spaghetti Junction interchange of I-285 and I-85, followed closely by I-20 and I-285.
The office market around the 285-400 project has seen more space emptied than nearly every other submarket in Metro Atlanta. Central Perimeter saw negative net absorption of 534K SF in the first half of the year, exceeded only by Buckhead, which lost 666K SF in the same period, according to Colliers.
The effects of the construction have directly affected Central Perimeter’s corporate tenants from being able to bring employees back to the office, said Bell, whose firm owns Concourse Corporate Center, the office park that includes the iconic King and Queen office towers.
“We've all been caught in traffic from it,” said Bell, who also is a board member of the Fulton County portion of the Perimeter Community Improvement Districts. “So it's fatigue, and I think it's hurt our office market more than we thought we'd like to admit.”
Central Perimeter offices are now 22.1% vacant, and approaching the all-time high of 24% in 2011 during the fallout from the Great Recession.
Companies also have been dumping office space onto the sublease market, with 2.3M SF now being offered by companies in Central Perimeter, including 390K SF of Cox Automotive space at Perimeter Summit and 570K SF at State Farm’s campus, where Carvana terminated its deal to occupy the space, according to Colliers.
Despite the construction pain, Central Perimeter remains a favored submarket among big companies — it sports the biggest concentration of Fortune 500 companies in the region — since its location is central to both people who live in the northern suburbs and those who live in the city.
The area will remain an attractive place for companies once construction of the interchange is complete, Stream Realty Executive Managing Director Ben Hautt said.
“A lot of the construction time was eaten up by Covid when it was probably its worst. So I think now just like any home improvement project or renovation, kind of that last 3% or that last 5% is the most painful,” Hautt said. "But we’re almost there, and it truly will be great when it’s done."
Panelists also said another challenge in Central Perimeter is connectivity, especially ways people can traverse on foot instead of getting into their cars. It’s an issue that the three cities that make up Central Perimeter — Roswell, Dunwoody and Sandy Springs — have been addressing by adding networks of pedestrian paths.
RocaPoint Partners principal Phil Mays said that the paths aren’t enough on their own, but need to lead to projects and destinations people want to go to. Otherwise, they could spend their retail dollars elsewhere.
“I’m not just saying put in the sidewalk somewhere, but [put in] high-quality walking connectivity in this submarket so you can get from place to place,” Mays said. “There’s got to be a quality way to get around everywhere because once people get in their car, the office workers, they’re going home.”
Connectivity also is critical since newer developments are focused on the retail aspects as opposed to stores and restaurants being an “afterthought,” JLL Executive Vice President Coleman Morris said.
“We’re seeing a huge shift with retail becoming the first thought,” Coleman said.
Hautt said MARTA won’t help connectivity in Central Perimeter, even though the submarket boasts three transit stations in its borders. The problem, Hautt said, is MARTA wasn’t designed with the pedestrian in mind.
“Research says a quarter of a mile is really the walking distance. So as you think about walkable amenities, quarter of a mile, quarter mile, quarter mile,” he said. “So MARTA doesn’t really line up within a quarter mile. We were hopeful Uber and scooters could fix that. But that’s not really [been] the case.”