Demand for Quality Atlanta Office Space is Outpacing Supply

Market Insights
February 25, 2016

Keith DeCosterDirector of U.S. Real Estate Analytics

Leasing activity in the Greater Atlanta area took a bit of a breather in 2015 as tenants leased just under 6.0 MSF in 2015. During the second half of the year only seven leases for more than 50,000 SF have been completed, and only one for more than 100,000 SF was finalized. Renewals have become more prevalent as many businesses realize that staying put is their best option. There are, however, quite a few large space requirements out in the market, competing for quality spaces and locations.

The slowdown may have less to do with cooling demand and more to do with limited supply and pushback against rising rents. Tenants leased 7.2 MSF in 2014 and 10.6 MSF in 2013. Tight market conditions characterized by fewer options, decreased concessions and increasing rents (up by 15% to 25% in Buckhead and areas of Central Perimeter) are contributing to an elevated number of renewals. As rents in new towers push well above $30.00 in Central Perimeter and $40.00 in Buckhead, the gap between rent in existing buildings and new properties has become more apparent.

This gap is helping some landlords win renewals, particularly if they agree to add amenities and upgrade common areas. RaceTrac, for example, recently mentioned the soaring rents in new projects as a key reason for its decision to relocate to 200 Galleria, an existing Class A tower in Northwest Atlanta.

This is the first cycle in recent memory in which the supply in Atlanta does not lead demand. Rather, demand for quality product is outpacing supply, particularly in the most coveted sections of Buckhead and the Perimeter. This is creating competition among multiple tenants for a handful of options. Companies looking for a block of at least 50,000 SF of space in Buckhead have very few options; they either have to stick with what they have or shift strategies – push out along the Perimeter, or consider options within the other urban core submarkets of Midtown and Downtown. There is talk about a handful of speculative developments that could get started, but unlike in prior cycles, there is no race to be the developer to break ground first. Soaring construction costs are curbing the normal impulse among developers to offer build-to-suits. Atlanta’s skyline, like that in many other major U.S. metros, is dotted with cranes constructing high-rise condos and multi-family buildings. Developers are expected to add just under 10,000 multifamily units in 2015 and 2.0 MSF in the industrial sector.





Keith DeCoster

Keith oversees the production of local and national market materials. Keith also collaborates with his colleagues across the U.S. and Europe, specializing in reports and insights that highlight the impact of economic trends and market fundamentals on tenants.