Atlanta Office Market Shows Modest Demand Growth with Class A Strength Offset by Class B Weakness

EXECUTIVE SUMMARY

Q2 in Review

The Atlanta office market exhibited modest signs of increased demand in the second quarter of 2025, driven by Class A properties, though Class B assets continued to hinder overall performance. Net absorption turned slightly positive at 14,561 sq. ft., a notable improvement from Q1 2025’s negative -86,219 sq. ft. Class A properties recorded a robust positive absorption of 359,653 sq. ft., while Class B saw a decline of -345,092 sq. ft., underscoring the persistent disparity between premium and secondary office spaces.

The overall vacancy rate rose slightly to 26.9% from 26.6% in Q1 2025, reflecting ongoing challenges, though sublease availability dropped further to 2.71 million sq. ft., down from 3.1 million sq. ft. in Q1 2025 and 3.3 million sq. ft. a year ago, indicating that sublease space may have peaked. With no new deliveries in Q2 and construction steady at 565,367 sq. ft. (down 72% from Q2 2024’s 1.57 million sq. ft.), limited new supply continues to mitigate vacancy rate increases.

Rental rates increased to $32.41 per sq. ft., up 2.6% from $31.57 in Q1 2025 and 0.6% from $32.22 a year ago. Class A rates climbed to $34.24 per sq. ft., while Class B rates rose to $25.18 per sq. ft., highlighting the premium for high-quality space. Atlanta’s pro-growth economic climate continues to attract businesses, and the market’s gradual demand growth—driven by Class A resilience and constrained supply—offers cautious optimism. However, elevated vacancy and Class B struggles indicate a bifurcated recovery favoring premium properties.

MARKET OVERVIEW

Atlanta Economic UpdateThe unemployment rate for the Atlanta metro area dropped to 3% in April 2025, significantly lower than the national average of 3.9%, according to the U.S. Bureau of Labor Statistics (BLS) Local Area Unemployment Statistics. Total employment in Atlanta increased by 0.2% from April 2024 to April 2025, as reported by the BLS Current Employment Statistics, building on a trend that saw approximately 3.1 million jobs in the area as of January 2025.

Job growth has slowed (7,000 jobs added over the past year), with notable gains over the past year in sectors such as healthcare, finance, and hospitality, according to BLS data. Counties like Cobb, DeKalb, Fulton, and Gwinnett contribute to this economic strength with competitive wages and steady employment increases. Long-term, Atlanta continues to leverage its lower living and business costs compared to major East and West Coast cities, maintaining its appeal as a prime destination for businesses and residents.

Leasing Activity Down 31% from Prior QuarterLeasing activity totaled 1.48 million sq. ft. in Q2 2025, down 31% from 2.16 million sq. ft. in Q1 2025 and 59% from 3.64 million sq. ft. in Q2 2024. Class A leasing reached 991,954 sq. ft., while Class B accounted for 492,902 sq. ft., reflecting a continued preference for premium space. Notable new leases signed in early 2025 include Boehringer Ingelheim signing a lease for 73,900 sq. ft. at the Medley at Johns Creek, TriNet signing multiple leases (65,249 sq. ft. and 49,095 sq. ft.) at The Offices at High Street, Kuros Biosciences signing a 50,003 sq. ft. lease at Founders Park and Clark Hill signing a 28,259 sq. ft. lease at 3630 Peachtree.

Class A Net Absorption Strong, Class B Remains a Drag

Net absorption was slightly positive at 14,561 sq. ft. for Q2 2025, a significant improvement from Q1 2025’s negative -86,219 sq. ft. Class A properties posted a strong 359,653 sq. ft., with notable gains in submarkets like Downtown (192,217 sq. ft.) and Northwest (184,238 sq. ft.), while Class B saw a loss of -345,092 sq. ft., driven by declines in Northwest (-81,684 sq. ft.) and Buckhead (-54,592 sq. ft.). This split reinforces Class B’s ongoing role as a market drag, while Class A’s strength signals growing demand for high-quality space.

Vacancy Rate Inches Up to 26.9%, Sublease Space Declines

The overall vacancy rate rose to 26.9% from 26.6% in Q1 2025, up from 25.7% in Q2 2024. Direct vacancy increased to 25.2% from 24.8%, while total availability dipped to 28.7% from 29.2% last quarter. Sublease space fell significantly to 2.71 million sq. ft. from 3.1 million sq. ft. in Q1 2025, a 12.6% decline, reinforcing the likelihood that sublease availability has peaked, offering signs of market stabilization.

No Deliveries, Construction Pipeline Steady

No new office space was delivered in Q2 2025, consistent with Q1 2025 and down from 573,890 sq. ft. in Q2 2024. The construction pipeline remained stable at 565,367 sq. ft., a 64% drop from 1.57 million sq. ft. in Q2 2024. Midtown (224,000 sq. ft.), Northwest (293,367 sq. ft.), and North Fulton (48,000 sq. ft.) account for the entire pipeline, with construction elsewhere. This constrained supply should continue to limit vacancy increases in the near term.

Rental Rates Rise Modestly

The average annual rental rate (FSG) rose to $32.41 per sq. ft., up 2.6% from $31.57 in Q1 2025 and 0.6% from $32.22 in Q2 2024. Class A rates reached $34.24 per sq. ft., while Class B climbed to $25.18 per sq. ft. Midtown led at $42.03 per sq. ft., followed by Buckhead at $38.46, while Northeast remained the lowest at $23.00. The modest increase reflects cautious market dynamics, with premium submarkets commanding higher rates.

Investment Sales Trends

In the second quarter of 2025, 22 office properties were sold in the Atlanta office market, with an average sale price of $159 per sq. ft. and a 7.3% average cap rate. Notable sales transactions include Spear Street Capital purchasing Eleven Hundred Peachtree from Manulife for $133.8 million ($229 per sq. ft.). The property was 75% occupied at the time of the sale. Also, Atlanta Braves Holdings acquired the 763,465 SF Pennant Park & Pennant View office portfolio from Rubenstein Partners for $93 million ($144 per sq. ft.). Rubenstein acquired the portfolio as part of a larger 1 million sq. ft. deal with neighboring properties in 2017.

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