Office Market Continues to Struggle

A recent wave of distress hitting Atlanta has translated into new opportunities for investors and thus resulted in their movement off the sidelines and back into the market. Investors have been actively seeking office buildings, which are offering the most opportunities in the current cycle. In fact, sales of distressed office properties at steeply discounted prices increased 65% from mid-year 2010 through mid-year 2011. Retail properties are also facing high levels of distress. Meanwhile, the industrial and multifamily sectors face the least amount of distress moving into 2012.

The Atlanta office market was the hardest hit of the four major property types and continues to struggle as weak permanent employment growth and reductions in square footage needed per employee will keep vacancy above 20% through year’s end. Effective rents continue to fall, albeit at a slower pace, and concessions remain very high as tenants find bargains and remain firmly in control of the market. On a positive note, high vacancy has virtually shut down the development pipeline, as only 564,000 square feet of space came on line in the 12 months ending in midyear 2011, representing a scant 0.1% increase in competitive for-lease stock.