Will Central Perimeter Office Rents Break Records?
It's very possible that Central Perimeter landlords could see record office rents of $40/SF if things keep on the current path, according to Ackerman & Co president Kris Miller.
Kris (on right with 7i Operations Group CEO Gary Davila) predicted yesterday during our Future of Central Perimeter event at Villa Christina that Central Perimeter landlords could reasonably expect that magic ceiling rental rate to be cracked within 24 months, most likely with a new office building. “When [rents] get within $2 or $3 [PSF], the efficiencies will offset that...and you may not have other options left in Central Perimeter,” he says. Still, there is a delta. According to the latest Colliers International report, Class-A office rents there have surpassed $26/SF, the highest suburban submarket rate in Metro Atlanta. To put it another way—thanks to steroid leasing by State Farm and Mercedes-Benz—asking rents for the remaining Class-A space in Central Perimeter now rival that of Midtown.
Even Regent Partners' John Bell (with Cooper Carry's Bill Halter) concurs that $40/SF rents are achievable. His firm is already seeing rents in the $30/SF range at the King and Queen buildings at Concourse Corporate Center (which Regent just sold for a record price of $489M). Our panelists say if the velocity seen in the past two years of nearly 1M SF of absorption per year continues, prime space will quickly become scarce. Rents could easily jump in response.
Both Kris and John were part of our panel of owners and developers, including KDC's Alex Chambers, Cushman & Wakefield's Andy Sumlin, Parker Hudson Rainer & Dobbs' Ken Kraft (who moderated), State Farm's Joaquin Jordan, Cooper Carry's Bill Halter and Cousins Properties' Bill Hollett. CP even got compared to Buckhead. “Central Perimeter today reminds me a lot of Buckhead back in the '80s,” John says. "Back then, Buckhead was a suburb. Today it's extremely urban."
Bill says the “elephant in the room” with Central Perimeter, though, is traffic, a pernicious issue that could threaten to derail the area's momentum. “The good news is it's front-of-mind for everyone that's in the market,” Bill says. One way to combat the love of the car for Central Perimeter commuters could be the advent of paid parking. “The ability to not have to use your car...I think paid parking is going to change people's attitude about people driving,” Bill says.
Alex, who is developing State Farm's campus, says the live/work/play philosophy is already established in Central Perimeter. What's happening now is to make the submarket more “walkable and approachable.” For example, once complete, Alex says workers at Concourse Corporate Center could feasibly walk to the Dunwoody MARTA station through the State Farm campus. “And it really will be a short walk. It's just hard to see today,” he says.
Joaquin says ultimately the 2M SF State Farm campus will be home to up to 9,000 employees. And the campus is being designed as a transit-oriented development, with employees being able to use MARTA and getting dumped right on campus. It's a reason State Farm chose the site. But when asked, Joaquin says State Farm is unsure just what percent of the employee base there will ultimately use mass transit to commute to work.