Steady Progress for Atlanta’s Office Market

March 24, 2023

The city ranks among the top 10 U.S. markets for office deliveries, according to CommercialEdge.

Image by Kruck20 via iStockphoto.com

Despite economic headwinds such as high inflation and rising interest rates, Atlanta’s office market has held steady during 2022, according to CommercialEdge data. The constant growth of office-using jobs fueled the metro’s development pipeline and the transaction volume was up 9 percent over the year.

Struggling to keep pace with demand, some 2.3 million square feet of office space entered the metro’s inventory in 2022, turning Atlanta into one of the top 10 U.S. markets for office deliveries. The ranking also includes two of its peers: Austin, with 4.3 million square feet, and Dallas, with 3 million square feet in project completions.

Midtown Union. Image courtesy of Granite Properties

The city’s largest property pertaining to new supply as of December was the office component of Midtown Union, an 8.5-acre mixed-use campus in Atlanta. Granite Properties developed the 612,000-square-foot office building at 1331 Spring St. in partnership with MetLife. The property also includes a residential tower and a hotel, as well as some 30,000 square feet of retail.

Another important addition to the metro’s office inventory is One Phipps Plaza, a 365,000-square-foot building at 3550 Peachtree Road, part of the Phipps Plaza mall redevelopment in Buckhead. Simon Property Group broke ground on the project in 2018, aiming at demolishing and rebuilding the former Belk big-box space into a mixed-use property to also feature a hotel and culinary market.

A steady pipeline

Nearly 4.5 million square feet of office space were under construction in Atlanta at the end of January, representing 2.3 percent of total stock. The value is larger than the one recorded on a national level, where office developments accounted for 1.9 percent of stock, but smaller than the pipelines of similar markets such as Austin (7.6 percent), Charlotte (5.2 percent) and Dallas (2.7 percent).

One of the largest underway projects is 3354 Peachtree Road, a 28-story tower rising on the last undeveloped parcel in Atlanta’s Buckhead. Upon completion, the high-rise will comprise 560,000 square feet of office space, together with 60 luxury condominiums and 11,000 square feet of retail. Regent Partners and Batson-Cook Development Co., in partnership with TIER REIT Inc., broke ground on the project in September 2022.

More office space traded year-over-year

Bank of America Plaza. Image courtesy of CP Group

More than 19.3 million square feet traded across the metro in 2022 for a combined $3.28 billion; in the previous year, the transaction volume had reached some 17.7 million square feet and sales totaled $3.54 billion.

The median sale price per square foot of 2022 was $197, below the national average of $247 and down 10 percent year-over-year. When compared to its peers, the metro topped only Dallas ($188 per square foot), while all the other important markets recorded significantly higher values: Phoenix ($258 per square foot), Charlotte ($291 per square foot) and Austin ($380 per square foot).

The largest property that changed hands last year was Atlanta’s tallest building. CP Group acquired the iconic 1.3 million-square-foot Bank of America Plaza, in a joint venture with funds managed by HPS Investment Partners. The seller was Shorenstein Properties. Second in size was a two-tower property encompassing some 1.1 million square feet, located in Atlanta’s suburb of Dunwoody, Ga. Developer KDC acquired Park Center Buildings 2 and 3 in a sale-leaseback deal with State Farm.

In another significant transaction, Hines and Invesco Real Estate sold Atlantic Yards, an office campus totaling 523,511 square feet in Midtown Atlanta. Global Atlantic Financial Group, a majority-owned division of KKR, acquired the two-building asset, which is fully leased to Microsoft Corp.

Vacancy rate, unchanged over the month

The A saw little office leasing activity in January as the vacancy rate remained unchanged over the month. The index lagged the ones recorded in the metro’s peer markets: Austin (19.1 percent), Dallas (17.9 percent), Phoenix (17.0 percent).

In one of January’s largest leases, MARTA signed a 130,000-square-foot commitment in Uptown, at Rubenstein Partners’ mixed-use district formerly known as Lindbergh. Starting this fall, the firm’s Capital Programs Expansion and Innovation group (CPEI) will occupy four full floors at the property’s 14-story East Tower.

And, as flexible office space has gained significant ground in recent years, so did Atlanta’s coworking sector. In January, the metro had nearly 2.1 million square feet of shared office space, representing 1.9 percent of its total rentable inventory. The metro surpassed all other important peer markets such as Charlotte (1.2 percent of rentable office space), Phoenix (1.5 percent) and Dallas (1.5 percent), but also Austin (1.8 percent).

With an inventory of nearly 784,700 square feet of shared office space, Regus was the largest coworking operator in Atlanta as of January. WeWork ranked second, with nearly 503,400 square feet, while Industrious occupied the third position, with a portfolio of approximately 248,000 square feet.