Atlanta Office Sector Stays on Track

Atlanta’s office sector held steady in the first quarter, with several metrics outperforming national benchmarks, according to Yardi Matrix data.

The metro led among the top 25 U.S. markets in year-over-year growth in average listing rates, which rose nearly 10 percent as of March, while the national average declined 1.8 percent. Despite price increases, the vacancy rate diminished, although remaining above the overall baseline.

Office visits also improved. Atlanta recorded a 13.9 percent year-over-year increase in visits as of March, outpacing the 11.5 percent national rebound. Even so, visits remained 25.1 percent below March 2019 levels, with only Miami, New York and Dallas posting stronger recoveries.

Meanwhile, the city continued efforts to repurpose downtown office space, building on last year’s initiatives. In July, the council adopted Plan A, an updated framework outlining long-term priorities for land use, growth and transportation. At the same time, planners moved ATL Zoning 2.0—a proposed overhaul of the zoning code aimed at facilitating the reuse of older buildings in the urban core—closer to completion.

Atlanta office pipeline stays thin

Development remained subdued for Atlanta office space, with a pipeline totaling 406,000 square feet at the end of the first quarter.The figure represented 0.2 percent of total inventory, a value half the national average.

Peers such as Dallas (2.3 million square feet), Austin (980,123 square feet) and Phoenix (622,156 square feet) fared better. When also taking into account the metro’s planned projects, its share grew to 2.4 percent, above the 1.4 percent U.S. threshold.

In February, CP Group announced plans to revamp Piedmont Center, a 2.2 million-square-foot, 14-building office campus within the Buckhead business district. Construction is set to begin this year and will transform the 46-acre complex into a mixed-use destination that will include a walkable retail and dining corridor.

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The company will also redevelop four buildings within the campus into 85,000 square feet of medical office. The first available space at the project, dubbed Buckhead Medical Center, will come online later this year.

In terms of deliveries, the Atlanta office sector saw only one project come online in the first quarter, totaling 36,218 square feet. Completions dropped almost 86 percent year-over-year.

Investment gains ground, pricing stays soft

Atlanta’s office investment volume in the first quarter of this year reached $210 million, behind Dallas ($859 million), Houston ($390 million) and Austin, Texas ($355 million). Manhattan remained the national leader, with $1.8 billion in sales.

Atlanta assets changed hands for about $190 per square foot, well below the $220 per square foot national average. Dallas ($222 per square foot) was one of the peers that had higher prices, while properties in Phoenix ($157 per square foot) and Houston ($103 per square foot) traded for less.

One of the quarter’s most notable deals in the metro was ESJ Capital Partners’ acquisition of the Sugarloaf Portfolio, a five-building office campus in Duluth, Ga. The company paid $45.4 million for the 317,826-square-foot complex.

Vacancy declines, rent growth leads nationally

Atlanta’s office vacancy rate clocked in at 18.4 percent at the end of March, marking a 110-basis-point decrease year-over-year. Regardless, the index still remained above the 17.8 percent U.S. average. Nationally, vacancy dropped 2.1 percent over the year.

The metro had less space available than peers such as Houston (19.5 percent) and Dallas (21 percent), but fared worse than Phoenix (16.6 percent).

At the beginning of the year, Kilpatrick, Townsend & Stockton LLP renewed its 148,000-square-foot lease at 1100 Peachtree in Midtown Atlanta. Spear Street Capital owns the 548,066-square-foot building that is currently undergoing renovations.

Average listing rates for Atlanta office space reached $36.64 in March, marking the largest year-over-year increase among the top 25 U.S. markets. The figure grew 9.8 percent.

The market ranked in the top 10 nationally and performed better than all peers except Austin ($46.48). Dallas ($32.06), Philadelphia ($31.33) and Phoenix ($29.54) fared worse.

Coworking share outpaces national average

As of March, Atlanta’s office sector had more than 5.7 million square feet of coworking space across 298 locations, according to CoworkingCafe. That footprint represented 2.7 percent of the metro’s total office inventory, 40 basis points above the 2.3 percent national share.

Among similar metros, Atlanta posted the highest coworking penetration. Phoenix (2.3 percent), Denver (2.4 percent) and Dallas (2.4 percent) followed, while Philadelphia (1.9 percent) had the smallest share. Nationally, Miami led at 4.1 percent.

Regus remained the metro’s largest provider, with 623,740 square feet across 29 locations. The list of important coworking operators also included Industrious (327,033 square feet), Roam (316,800 square feet) and WeWork (237,675 square feet).