Companies in Atlanta leased more office space in the first quarter of 2024 than at any point since 2021, according to new data from Savills. It was the busiest first quarter in five years, but the record amount of vacant space on the market continues to rise.

There were 2.4M SF of Metro Atlanta office leases signed in the first three months of the year, 71% more than in Q1 2023, per Savills. Nevertheless, office availability including sublease space in the region increased to 29.6%, up from 27.7% a year earlier.

The increase in availability is largely a result of new construction hitting the market, Savills Vice Chairman David Rubenstein, who heads the tenant-focused brokerage's Atlanta office, said in an interview Wednesday.

For the first time in more than 14 years, there is less than 1M SF under construction in the market. The projects underway, which include 1050 Brickworks, Southern Post, 1020 Spring and 619 Ponce, have little in the way of pre-leases signed, according to Savills researchers.

Class-A availability is almost 35%, Savills said.

More than 2M SF was added to the region's inventory year-over-year, and the newer buildings are taking up a larger share of the market, helping to drive overall vacancy higher, Rubenstein said.

The region’s total direct office vacancy rate stands at 24.6%, according to preliminary Cushman & Wakefield data, a rise of nearly 2% from last year.

"We’ve got a lot of new availability, some new buildings that have delivered. They tend to outperform the market because tenants are looking for all the bells and whistles," he said. "You get these new buildings that deliver, Class-A-plus buildings, and they have a lot of the features that existing Class-A product does not have, and it kind of trickles down. The A product loses out, then the B product loses to the A product."

While some tenants are contracting their space — including Manhattan Associates, which signed the largest deal of the quarter when it renewed for 210K SF at Wildwood Center, a 12K SF reduction — Rubenstein said companies' office strategies still vary.

The second-biggest lease of the quarter, Workday's 113K SF lease at 3350 Peachtree in Buckhead, was a renewal and expansion. Both Manhattan Associates and Workday signed deals at trophy buildings, per Savills' report.

Average asking rents in the region rose 5.5% year-over-year, a reflection of how much new construction is in the market rather than competition from tenants, Rubenstein said.

Landlords are handing out an average of $70 to $100 per SF in tenant improvement allowances and are giving a month of free rent for every year on a lease. The rise in concessions has outpaced the rise in asking rents, bringing effective rents down.

“Landlords are very protective of their face rates,” Rubenstein said. “That could be because of the message it sends to their investors, their lenders, the market, they want to really hold that face rate sacred.”

Office landlords have welcomed the recent news that UPS and NCR Voyix, companies that combined employ more than 10,000 office-using workers in Atlanta, have announced policies requiring most employees to report to offices five days a week.

Those companies are still outliers, and Atlanta's traffic has made it difficult for most businesses to require high levels of in-person work, Rubenstein said. Office-using employment in the city has also fallen for the past year, Savills data shows, and the amount of sublease space on the market rose to 8.1M SF from 7.9M SF in Q1 2023.

“It’s very encouraging to see UPS and NCR bring their employees back to work five days a week,” Rubenstein said. “I’m hoping that, because they’re big, well-respected companies, I’m hoping there are other companies that will follow their lead. I just don’t know if we’re going to see that or not.”