Title: Atlanta Office Market Sees Surge In Activity, But Vacancy Keeps Rising
Date: April 3, 2024
Author: Ethan Rothstein, Deputy Managing Editor at AtlantaOffice
Introduction:
The first quarter of 2024 marked a significant milestone for the Atlanta office market, with companies leasing more office space than in any quarter since 2021. However, this surge in activity comes amidst a continued rise in vacancy rates, raising questions about the market’s stability and future prospects.
Key Findings:
According to data from Savills, a total of 2.4 million square feet (SF) of office leases were signed in Metro Atlanta during the first three months of the year. This represents a substantial 71% increase compared to the same period in 2023. Despite this heightened leasing activity, the overall availability of office space, including sublease offerings, climbed to 29.6%, up from 27.7% a year earlier.
Factors Driving Availability:
The uptick in availability is largely attributed to new construction projects entering the market. Savills Vice Chairman David Rubenstein highlighted that, for the first time in over 14 years, there is less than 1 million SF under construction in the Atlanta market. However, many of these new developments, such as 1050 Brickworks, Southern Post, 1020 Spring, and 619 Ponce, have yet to secure significant pre-leases, contributing to the surplus of vacant space.
Impact on Vacancy Rates:
The increase in available office space has led to a rise in overall vacancy rates, with the region’s total direct office vacancy rate reaching 24.6%, a nearly 2% increase from the previous year. Class-A availability is particularly pronounced, with rates approaching 35%.
Tenant Strategies and Leasing Trends:
While some tenants are downsizing their office footprints, others are expanding or renewing their leases. Notable deals include Manhattan Associates’ renewal for 210,000 SF at Wildwood Center, albeit with a 12,000 SF reduction, and Workday’s renewal and expansion with a 113,000 SF lease at 3350 Peachtree in Buckhead. Average asking rents have risen by 5.5% year-over-year, largely driven by new construction activity rather than tenant demand.
Impact of Tenant Concessions:
To attract tenants in a competitive market, landlords are offering generous concessions, including tenant improvement allowances averaging $70 to $100 per SF and rent-free periods. However, these concessions have offset the rise in asking rents, resulting in relatively stable effective rents.
Outlook and Challenges:
While recent announcements by major employers like UPS and NCR Voyix to require employees to return to offices are encouraging, Atlanta’s traffic congestion and the ongoing shift towards remote work present challenges for the broader office market. Office-using employment has declined over the past year, and the amount of sublease space on the market continues to increase.
Conclusion:
The Atlanta office market’s surge in leasing activity during the first quarter of 2024 indicates underlying demand, but the concurrent rise in vacancy rates underscores ongoing challenges. As the market navigates the dynamics of new construction, tenant preferences, and evolving work patterns, stakeholders must remain vigilant and adaptable to ensure long-term resilience.
Source: Original Article
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