Atlanta's Stalwarts, Newcomers All Flocking To Its Priciest Buildings
Like many of its clients, Newmark Knight Frank's Atlanta office is looking for newer space in its effort to spruce up its image to potential employees.
Newmark is scouting the intown office market for up to 40K SF, NKF Executive Vice President Sean Moynihan said. Currently, the firm is housed at Monarch Tower in Buckhead.
“We're in outdated space,” Moynihan said. "In order to do my job and recruit, I've got to be out looking for newer space."
This has been the trend in Atlanta's office market this cycle: Higher-quality, more expensive space has attracted companies relocating in and to Atlanta.
That has been a boon for developers taking a risk on launching new office buildings: Of the more than 6M SF in 28 buildings expected to deliver by 2021, over half is already leased, according to Newmark Knight Frank research.
“Demand for top-tier office space is still prevalent across the Atlanta market, where high-profile tenants such as Google, Starbucks and WeWork are willing to pay a premium for newer, high-end locations,” Savills officials wrote in their Q2 report.
The activity still boils down to the key that has driven office tenants this past cycle: recruitment. Amid signs the economy could be heading for a slowdown or possibly a recession, companies' C-suites are aware how their office space directly affects their ability to recruit new talent, Cushman & Wakefield Executive Director Ken Ashley said.
“It's budget season. We'll see how the budgets impact the moves for next year,” Ashley said. "But the reality is the talent war is hotter than ever."
A number of banner deals have already been inked since the start of the year, giving Atlanta a healthy absorption rate of nearly 1M SF through the second quarter, according to Colliers.
Among the bigger leasing deals include Invesco, which is leasing 300K SF at MetLife's new Midtown Union project; McKinsey and BlackRock, which leased big chunks of space at 725 Ponce — the redevelopment of the Murder Kroger property in Midtown; and law firm Jones Day, which is anchoring a new office building at North American Properties' Colony Square redevelopment.
Most recently, the health equipment logistics firm Owens & Minor inked a deal for 67K SF at 1 Edison Drive, a brand-new loft office project in Alpharetta, sources familiar with the deal tell Bisnow. The once-speculative office building — which broke ground earlier this year — is already fully leased before its delivery.
In nearly every one of these cases, except BlackRock, which is new to the Atlanta market, tenants traded older offices for newer models.
“I certainly do see tenants with Class-A envy and people doing everything they can to upgrade,” Ashley said. “Shiny floors and open ceilings do a happy office make.”
Class-A office landlords saw positive absorption during the second quarter in nearly every submarket in Atlanta, according to Colliers. At the same time, a handful of submarkets saw more Class-B and Class-C office space bleed out tenants, including North Fulton, which had more than 100K SF of negative absorption in Class-B and C space, while the prime properties in the submarket leased more than 330K SF.
"I think it is musical chairs, exploring the market and looking for the shiny new penny,” Moynihan said.
Whether it is musical chairs or organic growth, Colliers officials remained bullish on Atlanta's office market through the remainder of the year.
"Given the robust first half, the Atlanta office market is poised for a strong finish to the year," Colliers officials said in its report. "Annual absorption for 2019 will most likely top 2M SF, the highest amount since 2015."