ATLANTA-In the second quarter of 2010, the Atlanta office market returned to negative absorption after a small amount of positive net absorption in the first quarter. The reason for the change, says Chris Shaner, research director at Wakefield in Atlanta, is the continued presence of downsizing and consolidating in the workplace.

Tenants are still giving space back to the market in response to economic conditions, says Shaner. “We are not seeing expansion as much and most companies which are leasing space today are considering operational efficiencies, such as using smaller offices,” he says. “Also, if there is no job growth, companies don’t need more space, so if they have a floor vacant and they don’t anticipate job growth they will sign smaller leases.”

Atlanta’s economic recovery continued to lag behind the US as a whole in the second quarter as it remained a focal point for bank failures, according to Cushman & Wakefield’s MarketBeat report on Atlanta in second quarter 2010. 

The Atlanta office market had 316,378 square feet of negative absorption in second quarter 2010, according to Cushman & Wakefield, and 155,584 square feet of negative absorption year-to-date, after a positive first quarter. Net occupancy losses in the Georgia 400, Central Perimeter and Midtown submarkets offset small gains in the Downtown and Cumberland/Galleria markets during second quarter.

 Most of Midtown’s 197,105 square feet of negative absorption (Cushman & Wakefield pegs negative absorption in Midtown at 277,598 square feet) can be attributed to the AT&T’s sublet space in Promenade II that returned to direct, leasable space, according to Richard Bowers & Co. Real Estate. Only three of the 16 Atlanta submarkets posted positive absorption in the second quarter, two of which were in the urban corridor: Buckhead with 52,496 square feet and Downtown with 43,663 square feet, according to Richard Bowers.

Leasing activity totaled nearly 1.7 million square feet in the second quarter and 4.1 million square feet were leased year-to-date in 2010, according to Cushman & Wakefield.

Developers have not broken ground on any new speculative development since completing 1.6 million square feet in three buildings in first quarter 2010. Only 60,000 square feet remained under construction in a build-to-suit project in the Georgia 400 market at mid-year, according to Cushman & Wakefield.

Although both urban and suburban markets posted negative absorption in the second quarter, the urban corridor continued to do better than the suburbs with 100,946 square feet of negative absorption, compared to the suburbs with 194,722 square feet of negative absorption, according to  Richard Bowers. Only three of the 16 Atlanta submarkets posted positive absorption in the second quarter, two of which were in the urban corridor: Buckhead with 52,496 square feet and Downtown with 43,663 square feet, according to Richard Bowers.

The overall vacancy rate in the Atlanta office market was 21.2% as of the second quarter, according to Cushman & Wakefield, while overall asking rates decreased slightly to an average of $21.65 from $21.85 in first quarter, but this is higher than year-end 2009, when overall asking rates were  $21.32. Rental rates went up because 1.6 million square feet of office space were delivered in first quarter 2010, says Shaner. New buildings tend to have higher asking rates than existing buildings, he says.

The overall vacancy rate in the Atlanta office market was 21.2% as of the second quarter, according to Cushman & Wakefield, while overall asking rates decreased slightly to an average of $21.65 from $21.85 in first quarter, but this is higher than year-end  2009, when overall asking rates were  $21.32. Rental rates went up because 1.6 million square feet were delivered in first quarter 2010, says Shaner. New buildings tend to have higher asking rates than existing buildings, he says.