Having trouble finding a parking spot at the office lately? Waiting longer for the elevator or in line for coffee at the lobby café?
It could be because metro Atlanta’s office buildings are filling up. The office vacancy rate in March hit an 8-year low, according to data last week from the research arm of commercial real estate firm CB Richard Ellis.
One factor is job growth, which has finally brought regional employment close to pre-recession highs. Another is lack of speculative construction that happened in the boom and left the metro area with lots of see-through office towers when the economy tanked.
Most new office space underway now is for specific tenants, such as State Farm near Perimeter Mall, and soon-to-launch campuses for NCR in Midtown, Comcast in Gwinnett County and near the new Braves stadium, and Mercedes-Benz in Sandy Springs.
There are so few big blocks of available space that landlords who once offered steep discounts or other perks are now raising rents, industry watchers say.
“The story of Atlanta is one of consistency,” at least recently, said Dan Wagner, CBRE’s southeast regional research manager.
Through the metro Atlanta recovery hasn’t kept pace with the rest of the country, the region added more than 100,000 jobs in the 12 months ended in February, according to the U.S. Bureau of Labor Statistics. And in professional and business services, the types of jobs that tend to fill office buildings, the region has about 467,000 such workers, or about 50,000 more than the pre-recession peak.
Key regional cog
Commercial development is a key cog in the region’s economy. Commercial projects such as office towers and retail centers diversify the property tax base, which was kneecapped during the recession.
The tightening of office space supply is also widespread, Wagner said, from corporate complexes in the northern suburbs to glimmering glass skyscrapers in Midtown.
Even downtown, long a laggard for the region, has seen pick up in interest among the top-tier of Class A towers, said Larry Gellerstedt, CEO of Atlanta-based Cousins Properties. Cousins pulled a plan to sell part of its interest in downtown’s 191 Peachtree tower, one of the city’s tallest, because of active leasing activity and rising values.
Metro Atlanta’s overall vacancy rate was 18.5 percent at the end of first quarter, according to CBRE Research. For Class A space the rate was 15.8 percent. (Different research firms have slightly different vacancy rates depending on methodology.)
As vacancy tightens it forces rents higher, which makes new construction feasible and the price of new space more competitive with older buildings.
“The last time we had vacancy this low there were a couple million (square) feet under construction,” Wagner said.
He also said the job growth rebound is more sustainable and the metro economy better positioned to weather a downturn.
“I think that Atlanta’s economy and industries are a little broader than they were during the last downturn and that will lend stability if a hiccup occurs,” Wagner said.
Of late, Midtown has grabbed some of the biggest headlines for recent jobs deals.
NCR is planning a new headquarters. Though it won’t fill up speculative space, its relocation from Gwinnett could drive suppliers and partners to want to locate nearby, Wagner said. Worldpay US, Pandora and AT&T are among the companies that have stepped up their presences in Midtown, and specifically around Georgia Tech to try to tap into the university’s students and faculty talent.
Playing to Millenials
“All of these companies are absolutely keen to get to the Millennial talent base,” Gellerstedt said. “You have to get to where these people want to live and work and play.
“That’s not to say there won’t be continued growth opportunities for the suburbs,” he said.
Indeed, North Fulton and Cumberland area are seeing growth in technology and professional services firms, too.
There’s only one substantial speculative office tower underway in the region — the 30-story Three Alliance Center in Buckhead — though plans for more build-it-and-they-will-come office space are in the works.
Georgia Tech is expected to soon pick a developer for the second phase of its Technology Square in Midtown that would include office space for the university and speculative space for companies.
Hines Interests is involved in a planned office building at the Avalon project in Alpharetta and a loft-style mid-rise office project for tech companies at Atlantic Station. A joint venture involving developer Seven Oaks reportedly has proposed a new office building near the hot Ponce City Market, the revitalization of the former City Hall East. Another joint-venture involving Cousins, Ackerman & Co. and H.J. Russell & Co. has a development site ready in Sandy Springs.
John Heagy, who leads the Atlanta office for Hines, said he expects more relocations to metro Atlanta such as the Mercedes-Benz U.S. headquarters. That will buttress organic job growth. Recent moves by the state Legislature to pump nearly $1 billion per year into transportation will help make the region more competitive.
“You can’t have the kind of success that we’ve had without attracting the attention of major companies that are maybe on the fence now,” he said.