Yesterday evening, just hours before Parkway Properties was set to host its annual meeting at the Buckhead Club today, we found something out: The firm sold Peachtree Dunwoody Pavilion, part of a gradual exit from Central Perimeter.

For Parkway, Peachtree Dunwoody Pavilion is part of a process that is having them essentially pull out of Central Perimeter in favor of further investments in Atlanta's core urban business submarkets of Buckhead and Midtown, says CFO David O'Reilly. The Simpson Organization picked up the four-building, 370k SF office park for $53.9M, a good opportunity given its MARTA access and the potential for more density, says founder Boyd Simpson. It also adds to his kitty of office space in Central Perimeter, which includes 56 Perimeter Center East and Morgan Falls Office Park.

David spent time with us along with John Barton and COO Jayson Lipsey yesterday at the Ritz-Carlton in Buckhead to discuss the firm's ongoing investment strategy. In short order, Parkway has sold its interest (held in its Parkway Properties Office Fund II) of Two Ravinia Drive for $78M to Franklin Street and now Peachtree Dunwoody Pavilion. That leaves Parkway with just 7000 Central Park—a 415k SF office tower in Cox Communications HQ campus where they're the lead tenant—in the submarket. And, as David says, it's likely Parkway will put it on the market later this year. 

While the sales of both Two Ravinia and Peachtree Dunwoody represent a market timing sale, David says, “I think that Central Perimeter has more risk.” And the biggest risk is the potential exposure that State Farm—the single largest benefactor to office landlords in the past two years—will leave once that insurance giant builds and moves into its new campus. Couple that with the likelihood that you have a handful of developers who could—and probably will—roll the dice on new office development there. Instead, David says Parkway will focus on Buckhead, where it's seen the best rent increases and strongest pipeline of demand. 

The firm owns 3344 Peachtree, One Buckhead Plaza, 3350 Peachtree (which secured PulteGroup's HQ last year), 3348 Peachtree and The Forum off Northside Drive, which puts the firm in control of nearly 2M SF of prime Buckhead office space. And it's helped them push rents, execs say, into the high-$30/SF range as available space in Buckhead diminishes—and despite the prospects of two spec towers coming out of the ground. And that has to do with raw numbers. While rents are rising, developers still need to pencil out at least $42/SF plus parking to justify construction. Many of the prospects developers are chasing are companies now paying in the low $30/SF range. So you're asking companies to essentially pay in excess of $10/SF-plus on current rents, says David, “and that's a big delta for them to overcome.”