Leasing activity on the upswing as the market continues to struggle with elevated vacancy rates.

EXECUTIVE SUMMARY

Mid-Year In Review
At the mid-point of 2024, the overall vacancy rate in the Atlanta Office market stands at 24.7%. This is up 470 basis points over the past year from 23%. Net absorption was negative for both the first and second quarters, but the amount of second-generation space being brought to the market, both direct and sublease, has been less over recent quarters. Through the first half of 2024, 592,818 sq. ft of negative net absorption was recorded, this is down significantly from than the -2.1 million sq. ft. that was recorded in the first half of 2023. Many long-established large companies in the market likely have an excess of office space but may now adopt a more cautious approach to reducing their office footprints due to the decreasing availability of high-quality properties.

As for office fundamentals moving forward, high-quality spaces are expected to experience decreasing vacancy rates due to ongoing relocations towards better properties and an intensifying new supply shortage. Atlanta will continue to be a favorable market in both the Southeast and the U.S., attracting companies with its business-friendly environment, excellent educational institutions, growing population, well-connected airport, and diverse economy spanning numerous industries. Additionally, Georgia’s recent ranking as 4th in the nation for job creation further cements Atlanta’s reputation as a thriving destination for office use.

Atlanta Economic Update
The latest unemployment rate for the Atlanta metro area is 3.9% as of July 2024. This is slightly higher than the previous month but lower than the national average and the long-term average for the area. Atlanta’s job market has more than recovered from job losses during the pandemic. There are now 6% more total jobs in the Atlanta area than there were in February 2020. Strong job growth has come from office-using sectors such as finance, professional services, and the technology sector.
Longer term, Atlanta boasts lower living and business costs than most large East and West Coast metros, and this competitive advantage should continue to boost population and job growth for the foreseeable future.

MARKET OVERVIEW

Leasing Picking Up Over Recent Quarters
The Atlanta market overall is seeing an uptick in leasing activity with 5.6 million sq. ft. of leasing activity in comparison to the prior six-month period that totaled just over 4 million sq. ft. As leasing activity increases, the average month on market has decreased. Currently, leasing activity is on track to surpass 2023’s volumes, with the first half of 2024 being about 30% higher than the latter half of 2023. There has also been an uptick in new-to-market requirements. A notable trend amongst leasing activity in the first half of 2024 was the return of extra-large transactions to the market. With twelve new deals signed, along with three renewals, that were greater than 50,000 sq. ft. Notable recent leasing activity includes Southern Company signing a lease for 265,000 sq. ft. at Midtown Center II, Newell Brands signing a lease for 180,000 sq. ft. at Concourse (both expansions), and Piedmont Healthcare signing a lease for 164,221 sq. ft. at 271 17th Street.

Negative Absorption Slows
Net absorption was negative for both the first and second quarters, but the amount of second-generation space entering the market, both direct and sublease, has steadily decreased in recent quarters. In the first half of 2024, 592,818 square feet of negative net absorption was recorded, a significant improvement from the negative 2.1 million square feet recorded in the first half of 2023.

Vacancy Rate Increases to 24.7%
The overall vacancy rate in Atlanta’s office market is at 24.7%. Like most major office markets across the country, elevated amounts of sublease space remain a drag on overall market fundamentals. Currently, there is almost 8.7 million sq. ft. of sublease space available, this is only about 82,000 sq. ft. below the all-time-peak reached in Q3 2023.

Under Construction Pipeline Tapers Off
New deliveries for first half of 2024 have totaled 851,115 sq. ft. The under construction 1.7 million sq. ft. pipeline continues to steadily decline and is almost 50% below the 3.3 million sq. ft. that was underway in Q2 of 2023. On a submarket level, the Midtown submarket currently accounts for more than two-thirds of office construction underway.

Investment Sales Trends
Over the past year, 108 office properties were sold in the Atlanta office market with an average transaction price of $125 and an average cap rate of 8.3%. Notable sales transactions in 2024 so far include Shorenstein Properties purchasing 14th & Spring, a 324,000 sq. ft. building built in 2022. The property was completely vacant at the time of the sale. Also, B Group acquired Ameris Center One and Two (a 534,487 sq. ft. complex) from the joint venture of TPG Angelo Gordon and Trinity Partners. The portfolio was 74% leased at the time of sale.

Rental Rates Mixed, Down Slightly for the Quarter but Up Over Past Year
The average monthly rental rate (FSG) for Atlanta’s office market is $30.09 per sq. ft. This is down slightly from last quarter (0.1%) but up 1.9% over the past year. Newer Class A properties continue to achieve at or near record high rates ($50 to $70 per sq. ft.), while Class B more commodity type properties are seeing slight rental rate declines ($18 to $25 per sq. ft.), making rates overall, mostly flat.

Steve Triolet
SVP of Research and Market Forecasting
tel 214 223 4008
[email protected]