Office vacancy in the Atlanta metropolitan area reached 19% at this year's midpoint, with direct vacancy increasing only slightly in the second quarter to 16.3%, according to Jones Lang LaSalle. New office deliveries outpaced demand during the past quarter, with a few previous owner-occupied buildings returning to the leasing market after they were vacated and sold.
"The Atlanta market has traditionally recovered from cyclic downturns faster than other markets," says Lanie Rea, local research manager with Jones Lang LaSalle. "As the local and national economies gain strength over the next few years, Atlanta's office market can be expected to tighten once again."
Asking rents remained stable during the second quarter at $21.66 per sf, as landlords have attempted to hold the line on pricing, especially for core product in class A urban submarkets, Rea says. She notes that it's likely for some urban office tenants to seek lower costs and concessions in suburban submarkets, though some such as Midtown and Buckhead have higher rents.
While absorption slipped into negative territory during the first quarter, Atlanta appeared to perform well through the next three months, gaining more than 500,000 sf of direct net absorption, according to Rea's research. Most of these occupancy gains are attributed to long-anticipated move-ins, such as Newell Rubbermaid's 350,000-sf lease in the Central Perimeter submarket, she says.
"Leasing activity has been slow in recent months, and over the next two quarters more move-outs are expected than move-ins," Rea wrote in her latest report. "Although year-to-date absorption levels are significantly positive, the market should realistically expect to see numbers flatten out by year-end 2008 with the expectation of having a stronger 2009."
Nearly two million sf of new office space is forecast for delivery in Atlanta throughout this year, adding only slightly to the city's existing inventory, according to the latest office research report by Marcus & Millichap. Conservative leasing activity and a less-robust economy are also expected to cause softening in local office fundamentals.
"Institutional investors will continue to exercise caution when making acquisitions, although activity could pick up if the national economy steadies later this year," says John Leonard, regional manager of Marcus & Millichap's Atlanta office. The brokerage predicts that local employers will add 1,000 jobs through the rest of the year, along with a gain of at least 2% in both asking and effective rents.
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