Look Beyond 20% Vacancy; Other Indicators Point to Recovery for Atlanta Office Market

By Elizabeth Jinks – Director, Marketing & Research


The headlines are true that metro Atlanta's overall office vacancy rate has risen to an all time high of 20 percent, according to CoStar Group’s Analytics team. But there are signs the market may be poised to enter the next upswing in this latest real estate cycle. To understand the full picture you need to look beyond the vacancy rate, and consider other crucial indicators that play a role in forecasting the commercial real estate market.


3630 PeachtreeConstruction: Now that the Buckhead building frenzy has ended with the last two towers delivering in the first quarter of the year, construction of new office space in metro Atlanta has come to a virtual standstill. (One of those two towers, 3630 Peachtree, is pictured at left.) A mere 175,000 square feet of new space is underway across the entire metro area in six buildings averaging 30,000 square feet each. This is the lowest amount new construction posted since 1986 (when market statistics began to be tracked). The credit crunch and stricter lending standards for construction loans have combined to create the perfect opportunity for landlords of existing buildings to finally fill their empty space without competition from new construction.

 

Absorption: At the end of 2009, The Atlanta Journal-Constitution reported it would take 12 years to fill all the available space in the market, but that statement does not take into account the fact that Atlanta historically operates at a higher average vacancy rate than most other major office markets in the country.  The highest quarterly net absorption ever was posted in 2Q 2000, 5.3 million square feet in one quarter alone, and the overall vacancy rate was still 8.8 percent.  In fact, the average quarterly vacancy rate from 1986-2010 is 15.2 percent.  Total net absorption was positive this quarter in metro Atlanta for the first time in six quarters, proving that demand is increasing.

 

Job Growth: There is finally some positive news for job growth in metro Atlanta. Georgia State University economist Rajeev Dhawan projected in May that although job growth will remain negative for calendar year 2010, there will be employment gains in 2011 and 2012. He also predicted that the unemployment rate would begin to decrease in 2011.  A larger than average portion of this job growth is projected in “premium jobs” – the leading generator of demand for office space.

 

When you take into account all of these market indicators, and consider the number of tenants seizing the opportunity to lock in a great rate, it seems Atlanta may finally be ready to slowly move into the next recovery once and for all.

 

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