Optimism Outshining The Data In Atlanta's Office Market
Perhaps in any other time in the Atlanta office market, this would be a sign that the sky is falling: Atlanta office landlords are facing the most available space on the market in its history.
But, optimism reigns supreme as leasing velocity looks to pick up in the coming months, according to a recent Colliers report on the market.
There was nearly 36.5M SF of vacant office space in Metro Atlanta at the end of the second quarter, according to Colliers. Taking into account space that tenants are expected to empty over the next three years — such as Norfolk Southern's 370K SF headquarters at 1200 Peachtree, which the railway giant will vacate this December for a new building — Colliers Director of Research Scott Amoson said the total amount of potentially available office space has hit a historic high of just under 52M SF.
"Some of this space will obviously be backfilled over this time. Some may be pulled off the market if companies decide to keep their space. A lot of unknowns and a lot can change over that time," Amoson wrote in an email. "Until we start seeing a dip in the availability rate though, it could adversely affect future vacancy in the market during this time."
But for some real estate leaders, there is cause for optimism given Metro Atlanta is a target for companies moving into the Sun Belt markets.
“We're incredibly bullish on Atlanta,” Highwoods Properties Inc. CEO Ted Klinck said July 28 during an earnings call. The office landlord — the second-largest in Metro Atlanta — signed more than 150K SF of leases during the second quarter, Highwoods Chief Operating Officer Brian Leary said during the call.
“Job growth there has been very strong,” he said. "Obviously, pretty broad-based as well. The technology companies get a lot of the headlines, but there have been many more inbounds, so it's a competitive market right now."
Cousins Properties signed 65K SF in Buckhead lease expansions this past quarter, and a company executive said Atlanta is benefiting from an overall trend taking place in Sun Belt markets.
“Atlanta, our largest market, continues to see an uptick in demand, particularly from the technology sector, and Midtown and Buckhead are leading the recovery so far this year,” Cousins Properties Executive Vice President Richard Hickson said during the company's earnings call last week. “Our current leasing pipelines in both Buckhead and Midtown are equally encouraging.”
Absorption turned positive in Metro Atlanta during the second quarter of this year, according to Colliers, with 215K SF taken up by companies like Thyssenkrupp, Deluxe Corp. and Jones Day moving into their new spaces. State Farm was the biggest driver for positive absorption during the quarter as the insurance giant continues to move into its new office campus in Central Perimeter.
That was partially counteracted by one of the biggest drains in Metro Atlanta: Truist Bank's continued office consolidation out of Atlanta and into Charlotte. The firm emptied 405K SF in Downtown and Midtown this past quarter, according to Colliers.
Other companies downsized or pulled back on space last quarter, showing that for smaller tenants, the work-from-home movement is still a big uncertainty in their space-planning decisions, Transwestern Vice President Max Mandelis said.
Mandelis had a client that was looking to increase its office footprint by 1K SF to 5K SF in Atlanta's Westside, she said, but after the company's C-suite surveyed its employees, it found that a majority of the workers were happy working from home most days.
As a result, the tenant ended up buying a small office condominium in the Kirkwood neighborhood of Atlanta.
“'We're not going to force anyone to come into the office,'” Mandelis said her client told her. "So we went from 4K [SF] to 1,800."
Nevertheless, Metro Atlanta is positioned to outperform many of the large office markets in the Northeast and out west as companies continue to follow population trends.
“As we have pointed out many times, the pandemic has served as an accelerant to the migration of people and companies to the Sun Belt,” Hickson said. “Companies are being driven to reconsider where they are located, primarily due to intensifying competition for talent. Companies simply need to be where the talent is or wants to be. And increasingly, that is in the Sun Belt.”
Amoson echoed those sentiments in Colliers' report, noting that Atlanta has a “healthy” list of prospective tenants and is a top choice for companies seeking talent and a “favorable business climate.” That optimism still isn't translating into enough deals to cut into the market's vacancy just yet.
“We have had some dialogue with a number of larger user groups that would kick off a development, both in Atlanta and Orlando,” Piedmont Office Realty Trust CEO Brent Smith said during his firm's earnings call last week. “And so I think we continue to be optimistic on that front, but there is nothing imminent.”