Losses in occupancy mainly occurred in the Central Perimeter, Northwest Atlanta and Georgia 400 submarkets, continuing a trend of softening demand that started in last year's fourth quarter. The past quarter's losses resulted primarily from an increase in sublease space, which reached its highest level since 2004 at nearly 2.5 million square feet, according to Chris Shaner, senior research associate at Cushman & Wakefield of Georgia Inc.
As a result, Atlanta's overall vacancy ended the first quarter at 17.3%, up slightly from the end of 2008. Average asking rents declined slightly to $21.25 per square foot, yet remained above historical lows for the market, Shaner says.
Although development activity and underwriting in the investment sector fueled steady increases in office rent during previous quarters, landlords are now struggling to hold the line on asking rates. This is especially true for 2.3 million square feet of new space set to open this year, mainly in the Buckhead and Midtown submarkets.
"There will be more aggressive concession packages in submarkets that are the most impacted," Shaner tells GlobeSt.com. "It's basically a tenant's market right now, but there are a lot of challenges for businesses."
Nearly 3.5 million square feet of office space is under construction citywide, of which only 10% has been preleased through the first quarter, he says. The other 1.2 million square feet is slated to open in the first quarter of 2010.
Local brokers maintain a strong long-term outlook for the Atlanta office market, noting that the city's inventory of 123 million square feet is less dense than Manhattan, Chicago or Washington, DC. They point out that until lately, Atlanta was in growth mode since the last recession ended five years ago.
"Atlanta is almost perpetually a growth market," observes Clark Gore, local market director for Jones Lang LaSalle. "New development in Midtown and Buckhead may struggle in 2009, but these properties have a 12- to 18-month leaseup schedule, not to mention strong financial backing."
Shaner adds that other office megamarkets across the country are feeling the pain of the current recession far worse than Atlanta. Furthermore, current sublease vacancies are still well below the local peak of nearly 6 million square feet recorded earlier this decade.
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