Calm Waters for Atlanta’s Office Market

June 28, 2023

How the city is stacking up against other major metros, according to the latest CommercialEdge data.

Image by Kruck20/iStockphoto.com

The Atlanta office market carried calmly on in the first four months of the year, despite the various economic headwinds that troubled the sector on several levels. While sales dropped in both prices and volume, office construction activity remained robust and leasing picked up pace. Here are the most relevant figures behind the metro’s evolution, according to CommercialEdge data.

Office construction remains afloat

Nearly 3.4 million square feet of office space were under construction in Atlanta at the end of April, representing 1.7 percent of total stock. The percentage was slightly smaller than the one recorded on a national level, where office developments accounted, on average, for 1.8 percent of stock. The index lagged the ones recorded in Austin (6.7 percent), Charlotte (3.8 percent) and Dallas (1.9 percent), but surpassed Phoenix (0.7 percent of stock).

One of the largest projects underway was Spring Quarter in Atlanta. Taking shape around the historic HM Patterson Home & Gardens, the mixed-use development will add 525,000 square feet of office space to the metro’s inventory. Developed by Portman Holdings, the property will also comprise 370 apartments and retail space at full build-out.

Correll Pavilion. Image courtesy of Grady Health System

In terms of new supply, some 670,000 square feet of office space have entered the metro’s inventory year-to-date as of April. The largest addition was Correll Pavilion, the new 600,000-square-foot outpatient facility of Grady Health System that also includes 220,000 square feet of medical office space. The 10-story building at 80 Gilmer St. SE was developed by a team that included Skanska, H.J. Russell & Co. and HOK.

As for traditional office space, the most sizeable new building came online in January at 950 W. Marietta St., as part of the Westside Paper mixed-use development. The four-story property comprises 207,300 square feet of rentable office space. A joint venture between Third & Urban and FCP is the developer of the 15-acre, adaptive-reuse project that will feature up to 350 apartments and 1 million square feet of commercial space when complete.

Leasing activity slowly improves

Atlanta’s office vacancy rate continued to improve in April, reaching 19.7 percent. The index started the year at 20.0 percent, grew to 20.5 percent in February and showed the first sign of rebound in March, when it clocked in at 19.8 percent. The indicator lagged the one recorded in Austin (22.0 percent) but surpassed the ones of Charlotte (11.8 percent), Dallas (17.2 percent) and Phoenix (18.3 percent).

Similar to other important markets across the U.S., the metro’s office leasing activity saw several downsizes combined with a rise in subleases. In one of the largest deals to have closed in the first four months of the year, Deloitte signed a 95,000-square-foot lease at Promenade Tower, a 774,610-square-foot office building owned by Cousins in Atlanta’s Midtown. The lease is less than half the space the company occupied at 191 Peachtree in Downtown for more than 10 years.

2002 Summit Blvd. Image courtesy of CommercialEdge

In another sizeable transaction, Zaxby’s committed to 51,493 square feet at 2002 Summit Blvd. in the Central Perimeter submarket. The 423,195-square-foot office building is part of the Perimeter Summit campus, an 83-acre master-planned development comprising roughly 1.7 million square feet of office space.

American Express was also the subject of a significant leasing deal. In March, the financial services firm signed a 48,000-square-foot lease at Midtown Union, the neighborhood’s newest office building. Developed by Granite Properties and MetLife Investment Management, the 644,046-square-foot tower came online in 2022. Invesco anchors the property, having committed to nearly 300,000 square feet last year.

Coworking, on the rise in Atlanta’s office market

As flexible office space has become more and more popular in recent years, so did Atlanta’s coworking sector. In April, the metro had nearly 4.2 million square feet of shared office space, representing 2.1 percent of its total rentable inventory and marking a 20-basis-point improvement since the beginning of the year. The A 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).

Regus was the largest coworking operator in Atlanta as of April, having nearly 784,700 square feet of shared office space in its inventory. WeWork ranked second, with some 503,400 square feet, while Industrious occupied the third position, with nearly 299,000 square feet.

Fewer sales at lower prices

Only 604,500 square feet traded across the metro year-to-date as of April for a combined $65.8 million; in the same period of 2022, the transaction volume had reached some 4.4 million square feet and sales totaled $865 million.

The median sale price per square foot of the period was $137, well below the national average of $196 and down 56.6 percent year-over-year. The metro also lagged all its peers, being surpassed by Charlotte ($177 per square foot), Phoenix ($237 per square foot), Dallas ($294 per square foot) and Austin ($389 per square foot).

The largest sale involved an 80,000-square-foot medical office building in Suwanee. Woodside Health acquired Research Court in March from Crossgate Partners. The buyer paid $12.1 million for the Class B asset, financing the acquisition with a $9.8 million loan from Independent Bank. The property previously traded in 2020 for $10 million.