"Leasing activity has slowed in recent months as well, and many of the deals being signed involve tenants who are downsizing or consolidating," says Lanie Rea, research director of JLL's Atlanta office. However, she points out that several large office users are scouting the market for space, particularly in the corporate medical and pharmaceutical arenas.
Despite the economic downturn, construction of new offices continues at a robust pace with just under five million sf under development throughout Metro Atlanta, Rea says. At least 1.5 million sf are scheduled for delivery through the remainder of 2008, with roughly two-thirds of that space opening in the second quarter, she says.
Negative absorption caused Atlanta's area wide direct vacancy rate to increase to 16.6% through the first quarter, with 19.5 million sf now available and more space being added as new buildings open, according to JLL figures. At the same time, asking rents increased during the quarter to $21.73 per sf throughout the metropolitan area, with the Buckhead submarket posting the most expensive rents at $27.38 per sf.
"With current economic uncertainties, some tenants in the market may decide to postpone leasing decisions while others may decide to capitalize on the abundance of available space, both in new office product as well as second-generation space," Rea says. She notes that new construction starts are likely to decline in the coming year as Atlanta works through almost five million sf of new space scheduled to come online through 2010.
Among local submarkets, Downtown Atlanta posted more than 900,000 sf of positive absorption over the last five quarters, largely due to improvements in tourist attractions and amenities, according to JLL's latest "View from Above" reports. At least two tenants are seeking spaces larger than 100,000 sf, which should help stabilize Downtown's current 20% vacancy rate and asking rents around $20 per sf.
Leasing activity has slowed in Midtown Atlanta, which has 17.5% vacancy and asking rents around $25 per sf. Two new buildings totaling 1.3 million sf are due to open next year, while local infrastructure improvements have halted the start of any new buildings for the rest of this year.
North Fulton County's office market, which posted a million sf of absorption over the last two years, hit a slowdown last quarter with 140,000 sf of negative absorption, JLL figures show. The market is still expanding after nearly tripling its space over the last decade, to 17 million sf, with over 400,000 sf currently under construction and 16% vacancy.
Buckhead, with 13% vacancy, is benefiting from key lease renewals but needs to recruit tenants from other submarkets to fill five class A buildings now under way, JLL research states. Northeast Atlanta, with 18.3% vacancy, still has the area's lowest asking rent at $17.37 per sf despite a slight increase during the first quarter.
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