The good news is that the 6.4 million sf of available sublease space is expected to decline over the next 12 to 24 months and prices for investment-grade properties are projected to continue rising.The bad news is that vacancies of 19.3% are expected to climb to 19.5% over the next year and rents are projected to drop by 1.5%. Earlier this year, the average effective rent dipped to $17 per sf, a 3.8% slide from first quarter 2002.
There is an estimated 25 million sf of office space available in metro Atlanta, according to Erica L. Leebove, senior market analyst at Marcus & Millichap, who edited and prepared the report.
"While there are several companies seeking large blocks of space, many are signing leases for space still in the pipeline or are planning to build their own offices," Leebove says. "Companies with leases coming up for renewal in the near future are taking advantage of softer market conditions and some are upgrading to new, high-profile properties."
In Midtown, the much-anticipated new office product is Hines Co.'s 625,000-sf, 41-story tower where the Atlanta-based law firm of King & Spalding is negotiating with the Houston developer for a reported 400,000 sf, over 75% of the entire building.
On the investment side, trophy properties are expected to generate top prices, even in a high-vacancy market, the report projects.
"Due to high vacancy and expectations for a relatively slow recovery, a few owners have chosen to cut their losses," Leebove says. "While some owners are selling properties at prices below what they paid just a few years ago, this is not the norm."
The analyst says there is "a tremendous amount of private capital available, but buyers are willing to wait on the sidelines until the ideal property becomes available. Others are expecting a surge in availability of REO properties in the near future."
But Leebove says "this may not occur, as many owners have refinanced at low mortgage rates to reduce debt service payments or cashed out equity to cover expenses until the market turns around."
The analyst adds, "Properties with strong tenants are still commanding high prices, but prices for properties with any type of vacancy issue are being severely challenged, which is deterring many owners from putting them on the market."
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