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Strong Office Leasing Start To 2020 Not Likely To Continue

The Atlanta skyline

Atlanta's office market had a nice start to the year. Then the coronavirus had to go and ruin it.

Metro Atlanta's first-quarter office absorption performance was on par with some of the best quarters the city has seen in recent years. During the first three months of 2020, companies leased nearly 2M SF more than they emptied.

The biggest move-ins during the quarter included State Farm at its build-to-suit campus in Central Perimeter and Children's Healthcare of Atlanta, which occupied the first phase of its Northlake campus, according to a report by Colliers International.

By March, the World Health Organization declared the coronavirus a global pandemic. Since then, most parts of the economy have essentially shut down as shelter-in-place orders become the norm.

The immediate impact was a drop in leasing volume in the first quarter to 1.6M SF, the lowest amount of activity since 2007, according to a report from Madison Marquette. The largest new lease signed during the first quarter was Macy's 108K SF deal at T3 West Midtown, where it is consolidating IT operations from California with plans to create 630 new jobs over the next five years.

Invest Atlanta's board of directors is expected to vote on Macy's incentive package Thursday. Macy's furloughed hundreds of thousands of its workers due to the pandemic. 

But the retailer still intends to push the deal with Hines forward and commit to those new hires, Macy's spokesperson Blair Rosenberg said. Macy's did furlough some employees in its IT division, but most of its cuts were at physical locations as it tries to support its online operations. The company did not say how many IT employees were furloughed.

Colliers said recent leases inked in the first quarter will help buffer against the overall drop in absorption that is expected due to the business freeze. Other big deals signed during the first quarter were Soliant Health's 60K SF lease at 5550 Peachtree Parkway in Peachtree Corners, Acoustic's 57K SF lease at the South Terraces building in Central Perimeter, Toyota Financial Services' 57K SF deal at Northwinds V and Merchant eSolutions' 54K SF lease at 1150 Sanctuary Park, both in North Fulton County.

“Looking ahead, leasing demand is expected to remain slow in the near term, as occupiers take stock of the crisis-related impact on their businesses,” Madison Marquette's report says. “Companies that were previously considering relocating or expanding office space will likely adopt a 'wait-and-see' strategy in real estate decisions during this heightened period of uncertainty, driving slower office leasing activity during the next three to six months.”