Owners Of North Fulton's Outdated Office Parks Look To Mixed-Use It Up But Risk 'Oversaturation'
The suburban office parks that dot North Fulton County are growing more obsolete by the month, a trend that could lead to a wave of demolitions as developers strive to make their properties relevant in today's corporate environment, one industry veteran said at a Bisnow event Tuesday.
“I think for every four-building office project, one might get torn down ... to pave the way for density of other types versus trying to redo those,” MidCity Real Estate Partners founder Kirk Demetrops said on a panel at Bisnow's North Fulton County event, held at Sanctuary Park in Alpharetta.
“What do they become? That question has not been answered. We're spending hours really thinking about what we can make these boxes become,” he said. “There's just so much demand in the market for real estate that these hold a lot of value.”
Getting rid of the older office buildings could be a welcome relief to the North Fulton market, which has wallowed with more than 160K SF of negative net absorption since the start of the year, pushing the vacancy rate to 18.5%, the highest level since 2003, according to a recent Colliers report.
Toro Development Co. is planning a major demolition with its redevelopment of the former State Farm campus in Johns Creek, slated to become a 43-acre mixed-use destination that eventually will tie into the city of Johns Creek’s larger Town Center project.
“We have a campus that has 450K SF of vacant office space that is obsolete. It's functionally obsolete. The good news for the brokerage community is early next year, 350K of that will get demolished, so that will take a good chunk of vacancy out of that submarket,” Toro partner John Kelley said.
Despite the rising vacancy, average rent in North Fulton is ticking up, driven by the newest buildings. The delta between Class-A and Class-B office in North Fulton is more than $8 per SF, with Class-A rents an average of $30 per SF, according to a recent Avison Young report.
“That's as wide as it's ever been, and I've been in the office business for 40 years here,” Demetrops said. “There are buildings that are winning. Some are going to have to change.”
Office space at Avalon is commanding $44 per SF, according to Avison Young, with office space at Halcyon close to that as well. The top offices in Metro Atlanta, often part of mixed-use campuses, today are seeking rents as high as $60 per SF, Demetrops said.
But panelists contend that vintage office buildings can still be competitive in North Fulton thanks to the proliferation of mixed-use projects in the area, especially if the older buildings are close to a strong amenity base.
Rubenstein Partners Senior Vice President Mahesh Mani said for a property like Sanctuary Park, a nine-building office campus situated in a 150-acre nature preserve in Alpharetta, proximity to other mixed-use destinations is a key driver. Sanctuary Park is across Georgia 400 from North Point Mall, which is slated for a massive redevelopment, and 3 miles south of Avalon, the high-end mixed-use destination that set a new standard in Metro Atlanta.
“We can't be everything to everyone, and we can't do all of it. So we are actually trying to embrace the ability of proximity, kind of getting some halo factor effects of developments of like the North Point conversion, so say we are in the greater footprint of that,” Mani said. “We're going to be a partner and benefit from the mixed-use assets that are coming closer to sort of the traditional set-back office parks that have kind of been in demand for the past 20-plus years, but not so much anymore.”
In a metro area that sprawled in previous decades, panelists say people now are wanting to stick closer to home and spend less time on the roads, which is putting offices in walkable mixed-use campuses and revitalized suburban downtowns at a competitive advantage.
“We either try to build city centers or be in them right now,” Demetrops said.
The underlying strengths of the city of Johns Creek demographics are going to likely drive the success of Toro's State Farm redo project, Kelley said. The average median household income in Johns Creek was more than $125,800 in 2020, more than double the median household income in Metro Atlanta in the same period, according to U.S. census data.
“Avalon is a huge regional draw. Our project in Johns Creek is more focused on the immediate surrounding community,” Kelley said, calling the project a “third place” for households in the city, just behind where people work and where people live.
“Your third place is the place you choose to spend your time to make memories and that could be the country club or the Little League park. But you're seeing it in all these town centers that are coming around in Atlanta that people are choosing to spend their time there,” he said. “We don't focus on driving sales. We focus on driving dwell time. We know that if people spend time on our property, that will translate to sales.”
New mixed-use projects also need to be curated to meet the local community's desires, said Cassie King, the senior director of design and placemaking with Trademark Property Co., the firm leading North Point Mall's $500M transformation, which received tacit approval earlier this month from Alpharetta's Planning Commission.
Trademark is planning to raze 464K SF of the existing mall to make way for 316K SF of new retail, office and restaurant space and 19 acres of green space set in a village atmosphere, according to The Atlanta Journal-Constitution. Trademark, spearheading the project on behalf of the mall's owner, New York Life Insurance Co., also plans two phases of apartments and 286 for-sale residential units.
But some panelists cautioned that developers are at risk of overdeveloping mixed-use projects in North Fulton if two nearby projects attempt to cater to the same crowd.
“I think there is definitely a risk of oversaturation. Halcyon and Avalon are very close to each other, but they are quite different. And I think that was intentional,” Mani said. “Just slapping together kind of the latest shiny toy is not going to be the answer. Underwriting a community is important. So what works in North Fulton may not work in Buckhead.”
Demetrops said while his firm's project — called The Grove, part of Downtown Snellville's redevelopment — is considered mixed-use, the project is a collection of single-purpose buildings clustered together.
“I don't think every project needs or should be mixed-use. Most of our buildings themselves aren't mixed-use,” Demetrops said. “We've all seen examples, particularly under apartment buildings, where retail doesn't function right and doesn't perform right. Stamping mixed-use on everything, I think, is not the right answer.”