Highwoods To Focus On Leasing in ATL

As Highwoods Properties sees a boost in revenues in Atlanta after buying and filling One Alliance Center, Jim Bacchetta says the marching orders for 2014 are to continue to eat away at the company's metro vacancies. “We've got real good activity,” Jim says, noting that when it purchased One Alliance Center (below), it was 67% occupied. Now thanks to the 43k SF Novelis lease last year and some other smaller deals, the Buckhead tower is up to 81%.

Highwoods reported in its 10-K that Atlanta has the lowest occupancy of all its markets at 82% (but also owns the most SF at 4.7M SF). But even with selling its industrial assets, Highwoods saw rental revenues increase from $60M to $80M from 2012 to 2013. Jim says that has much to do with the fact that it traded smaller industrial rents for the higher office rents. Plus, the company has been able to reduce concession packages: During the recession it wasn't uncommon for landlords to offer two months free for every year of term. Today, it's half of that or less, he says. “But also face rates are going up, too,” at least a dollar over the past year, Jim says. (Does that include a nosejob?)

That doesn't mean Highwoods doesn't have leasing challenges. One of its largest tenants, the FBI (which occupies 135k SF at Century Center) has indicated that it will seek a new office building somewhere along I-85. (But you didn't hear that from us, because we don't need them showing up on our doorstep.) “There is the prospect of losing them, but not until 2016." But Jim says he's confident demand is strong enough to backfill the FBI space. It has backfilled almost all of its 2800 Century Center office building when it got a 223k SF hole in 2012.

Jim also confirmed Highwoods is interested in 3630 Peachtree, the 425k SF Buckhead tower co-owned by Pope & Land and Duke Realty. The problem is--for buyers at least--3630 Peachtree is hitting the market at a time when few trophy towers are for sale. “I think that one's going to garner an enormous amount of attention,” Jim says. “We'll take a crack at it like everybody else. But Atlanta's becoming more and more attractive to all types of investors. I'd be surprised if 3630 doesn't trade at a pretty low cap rate.”