Q2 2012 Atlanta, Georgia Office Submarket Trends

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Q2 2012 Atlanta, Georgia Office Submarket Trends

Central Area: Buckhead/Lenox

  • In the upscale Buckhead market, the 1.5 million square feet that delivered in three new spec office towers in 2010 brought total competitive submarket inventory to 14.8 million square feet.
  • The new construction, however, was poorly coordinated with the contraction of demand under way at the time. The leasing of these buildings and the related stresses on the market have been significant recent themes for Buckhead. “Flight to quality” has also been a factor in this submarket.
  • While absorption was minimally positive in 2010, the total was insignificant alongside the year’s 1.5 million square feet of new supply as the vacancy rate rose to nearly 29.0%.
  • Net absorption of 578,000 square feet in 2011 alongside no new supply was followed by a slowdown to 104,000 square feet during first half 2012.
  • Vacancy ended the latest quarter at 23.3%, down 50 basis points from a quarter earlier, down 90 year-over-year.
  • At $27.37 psf and $21.42 psf, second-quarter average asking and effective lease rates were unchanged from the quarter before but were up 0.7% and 0.8% year-over-year.
  • Terminus 200. The 564,000-square-foot Terminus 200 from Cousins Properties delivered at 3280 Peachtree Road NE in August 2010. During second quarter 2012, law firm Greenberg Traurig moved into 94,000 square feet on five floors of the building, according to Cassidy Turley and industry sources. Leasing in the building was reported by Cousins at 84% as of May 2011.
  • 3630 Peachtree. Duke Realty Corporation’s 34-story, 422,000-square-foot 3630 Peachtree building completed in March 2010. The project was developed in partnership with Pope & Land Enterprises, Inc., Novare Group, and Post Properties Inc. A residential condo component is included.
  • Leasing. The building has been slow to fill. Its latest lease, SapientNitro’s July 2012 deal for 23,000 square feet, in a relocation from the Central Perimeter area, brought occupancy at 3630 Peachtree to “nearly 70%,” according to citybizlist.
  • Phipps Tower. This $175 million, 20-story, 486,000-square-foot building at 3438 Peachtree Road delivered in February 2010. Crescent Resources, LLC, and Manulife Financial were co developers. Leasing in this project also has been slow. Excluding this building, notes Jones Lang LaSalle (JLL), “big block options in the premium Buckhead buildings have waned.”
  • A new project—update. Regent Partners and Pope & Land Enterprises are moving closer to the start of the 17,634-square-foot 3330 Peachtree building, the Atlanta Business Chronicle reported in May. The building will host a new financial services and trading center for TD Ameritrade Holding Corporation. Demolition of the 60,000-square-foot property at the site will be required.
  • More. “The developers also have a second, larger phase of the overall redevelopment that would include a new building of up to 150,000 square feet to contain the U.S. headquarters of a European company, along with retail and either apartments or condos,” adds the report.
  • For sale. Tishman Speyer has put its 30-story Two Alliance Center building on the market and “hopes to garner $350.00 psf, or $172.6 million,” reports Studley, Inc. “A sale of this size would rival the recent record-setting sale of 3344 Peachtree, which changed hands for just under $346.00 psf.” Two Alliance Center has “stable cash flow” and occupancy above 90%, according to this source.
  • For sale. Also on the market is TIAA-CREF’s 18-story Prominence building at 3475 Piedmont Road NE. The building “has made a dramatic turnaround,” according to Studley, Inc., refilling spaces emptied in 2009 and 2010. Leasing in the property has increased from about 35% to more than 90% in the recent term.
  • SunTrust Atlanta Bank’s SunTrust Robinson Humphrey group has evacuated about 60,000 square feet of downtown space in favor of expansion into 140,000 at the Atlanta Financial Center in Buckhead, reports JLL.
  • Outlook. Reis expects absorption to run close to zero over the remainder of the year. A year-end total of 95,000 square feet, along with a 10 basis point rise in the vacancy rate, is forecast. Modest increases of 1.1% and 1.8%, asking and effective, are projected for average rents for the year. A better performance is expected for 2013 as construction remains slow.

Central Area: Midtown

  • The 14.1-million-square-foot Midtown/Pershing/Brookwood submarket also has faced challenges on the supply front, if with less severity.
  • Two new major buildings with a combined total of nearly 1.3 million square feet have completed construction in Midtown since April 2009, with the latter delivering in March 2010.
  • No projects have delivered since. None will deliver in 2012. None was under construction per the middle of July.
  • Following 198,000 square feet of positive net absorption all told in 2011, first half 2012 followed with 151,000. The total for second quarter alone was plus 166,000.
  • Vacancy ended the latest quarter at 17.2%, down fully 120 basis points for the period, down 240 year-over-year.
  • At $26.02 psf and $21.25 psf, second-quarter average asking and effective rents were up 0.3% each for the quarter and were up 1.5% and 1.8% year-over-year.
  • The most recent completion here was the March 2010 finish of the 725,000-square-foot, 38-story, speculative 1075 Peachtree Street tower. The building is the second phase of Daniel Corporation and Selig Enterprises’ $2 billion, multiphase 12th & Midtown mixed-use redevelopment.
  • Leasing. According to a June report in the Atlanta Business Chronicle citing JLL research, 1075 Peachtree hosts 309,590 square feet of vacant space. As reported previously, PricewaterhouseCoopers LLP is expected to take occupancy of 140,000 square feet in the second half of 2012.
  • More vacancy. According to the Business Chronicle and JLL, 238,708 square feet remained vacant as of June in the recently built 271 17th Street building at the Atlantic Station multiphase mixed-use development.
  • More. Studley, Inc., reports a 52,500-square-foot second-quarter lease by Ogilvy & Mather in the building.
  • In the Promenade building, 230,000 square feet of contiguous space remained empty as of June. Promenade “will likely compete heavily against … 1075 Peachtree” for tenants, according to the Business Chronicle.
  • Reis reports five general purpose, multi-tenant office buildings with a combined total of 2.67 million square feet planned for construction in Midtown. None had a specified start date as of mid-July.
  • Demolition began in January for Ponce City Market, the mixed-use redevelopment of the 2-million-square-foot former Sears Roebuck building at 675 Ponce de Leon Avenue. Jamestown Properties and Green Street Properties are the developers. Plans include 500,000 square feet of office space.
  • Planning also includes 750,000 square feet at the Midtown Square development at 1001 Peachtree (at 10th Street).
  • For sale. Jamestown has placed the 999 Peachtree tower on the market, the Business Chronicle reported in late July. “Jamestown, which invests German money in U.S. real estate, bought the 28-story tower in 2007 for $127 million and has since repositioned the building, bringing it to 94% leased.”
  • Second-quarter leases include SunTrust’s for more than 95,000 square feet at Campanile in a relocation from downtown, reports Cassidy Turley.
  • Outlook. Reis expects a slowdown in net absorption over the remainder of the year: the year-end count is forecast at 121,000 square feet. Vacancy should rise to 17.5%. Rent growth should run at about 1.5%. Additional moderate progress should follow.

Central Area: Downtown

  • With Buckhead and Midtown the core area’s most active submarkets, the 16.2-million-square-foot CBD has languished.
  • No projects have completed since Barry Real Estate Companies’ 350,000-square-foot 55 Allen Plaza (a.k.a. the Ernst & Young building) delivered in 2007 at 55 Ivan Allen Boulevard. The building is part of the $2 billion, 3-million-square-foot, multiphase, mixed-use Allen Plaza complex.
  • While second half 2011 saw 195,000 square feet of positive net absorption, first half 2012 followed with negative 223,000.
  • Vacancy has run above 20.0% since second quarter 2008. The rate for second quarter 2012 was 23.2%, up 20 basis points both for the quarter and year-over-year.
  • At $21.48 psf and $16.55 psf, second-quarter asking and effective average rents were up 0.2% and 0.1% for the period and up 0.6% and 0.7% year-over-year.
  • No general purpose, multi-tenant office projects were under construction in downtown Atlanta per the date of this report. Construction timetables for planned projects remain uncertain.
  • The Georgia Chamber of Commerce has announced a 12-year lease for 48,000 square feet at the 22-story 270 Peachtree building, the Business Chronicle reported in July. The move, however, is a relocation from downtown’s Peachtree Center building.
  • Outlook. Despite the poor start, the outlook for the CBD for the remainder of 2012 is relatively favorable. Second-half net absorption at about 80,000 square feet, alongside no new supply, should shave 50 basis points from the vacancy rate. Rent growth should be minimally positive for the year as a whole.

Suburban North: Central Perimeter

  • The Central Perimeter area (included within Reis’ North Central/I-285/Georgia 400 submarket) has been a prime development zone for commercial and residential projects of all types. It has been relatively inactive with office development since 2000, however.
  • With more than 23.7 million square feet of existing inventory, it remains metro Atlanta’s largest office submarket.
  • Construction has ceased. Only one project has completed here since 2004—the 350,000-square-foot Two Glenlake, which delivered in 2008 in Sandy Springs. Newell Rubbermaid occupies the entire building.
  • “While Central Perimeter saw minimal absorption during the quarter,” notes Cassidy Turley, “the leases signed in Central Perimeter during the second quarter will result in over 600,000 square feet of positive net absorption this year.”
  • “Central Perimeter has emerged in 2012 as a hot spot both in the leasing market and in the investment sales arena,” adds this source.
  • As reported by Reis, four consecutive years of negative net absorption in the North Central/I-285/Georgia 400 submarket reduced occupancy by 1.9 million square feet.
  • The net absorption total for first half 2012 was negative 309,000 square feet.
  • Vacancy ended second quarter at 21.9%, up 90 basis points for the period, up 120 year-over-year.
  • At $22.28 psf and $17.97 psf, second-quarter average asking and effective lease rates were up 0.5% and 0.4% for the quarter and were both up 1.1% year-over-year.
  • No general purpose, multi-tenant office projects were under construction per report date. A major single-tenant project, however, is under way. (Another is under development in a nearby north side submarket, as described under “Other” at the conclusion of the Submarkets section.)
  • A 600,000-square-foot build-to-suit (owner-occupied) project is under construction for Cox Communications in the Central Park business park at Peachtree-Dunwoody Road NE and Central Park West. Reis expects completion in November.
  • A major lease. In what JLL describes as the largest lease metro-wide in 2012 to date, State Farm insurance company leased 434,500 square feet at Rubenstein Partners’ 64 and 66 Perimeter Center East, near Perimeter Center Mall, in June. The vacant space was occupied previously by Philips Electronics.
  • Studley, Inc., reports a 112,000-square-foot second-quarter deal by Elavon at 2 Concourse Corporate Parkway.
  • Dell SecureWorks expanded by signing a 115,000-square-foot lease at Concourse Corporate Center One during the quarter, according to JLL and Cassidy Turley.
  • In a consolidation from Northridge Center II, Oldcastle Materials, Inc., upgraded to 91,595 square feet of Class A space at 900 Ashwood Parkway during the quarter, according to industry sources.
  • Elekta Inc. committed to 77,077 square feet at 400 Perimeter Center Terrace NE during the period.
  • Outlook. For the entire submarket, Reis expects net absorption at about 70,000 square feet over the remainder of the year alongside no new supply. The vacancy rate should shed 30 basis points by the end of the year. Gains slightly above 1.0% are expected for average rents.

Suburban North: Roswell/Alpharetta

  • The north suburban Roswell/Alpharetta submarket contains 15.1 million square feet of general purpose, multi-tenant office space. This submarket has been generally attractive to high-tech business.
  • A new market. Construction was very active here prior to the downturn, especially in the late 1990s and the first couple of years of the 2000s, when 11.2 million square feet, 73.7% of the current existing inventory total, was built.
  • No general purpose, multi-tenant office space has completed construction here since 359,000 square feet delivered in 2008. None was under construction per report date, but more may be on the way (see below).
  • Net absorption in Roswell/Alpharetta was positive at 83,000 square feet all told in 2011 but ran negative at 60,000 square feet through first half 2012 (the second-quarter total was positive 15,000).
  • Vacancy ended the latest quarter at 21.0%, down 10 basis points from the quarter before, down 60 year-over-year.
  • At $19.85 psf and $15.24 psf, second-quarter average asking and effective lease rates were down 0.2% each for the quarter but were up 0.2% and 0.3% since second quarter 2011.
  • Spec. JPMorgan Chase & Company is planning the 175,000-square-foot speculative Stonebridge IV project in its Sanctuary Park complex, the Business Chronicle reported in February.
  • North American Properties received approvals in April for the $600 million Avalon mixed-use development in Alpharetta, the Business Chronicle reported at the time. Greenstone Properties will develop, lease, own, and manage a 350,000-square-foot, 14-story office building at the project. Avalon is expected to open in October 2013.
  • More. Including the above-cited 350,000-square-foot project, Reis reports 640,200 square feet of office space planned for three facilities at Avalon at Old Milton and Westside parkways.
  • Background. Avalon is the resurrected version of Thomas Enterprises’ planned Prospect Park development, a casualty of the recession.
  • A number of other substantial projects have been proposed for this submarket.
  • Tech. “Technology is still king in Alpharetta,” states JLL. Financial technology firm Ingenico has announced its decision to relocate from its current Class B space to 33,000 square feet of Class A at Windward Fairway I.
  • Network security solutions provider Lancope leased 26,000 square feet during the quarter at Brookside 100.
  • At 3795 Data Drive in Norcross, within the neighboring Peachtree Corners submarket, CCI leased 55,000 square feet during the quarter, reports Studley, Inc.
  • Outlook. With demand improving over the remainder of the year, 2012 is expected to close with a positive net absorption total of about 40,000 square feet and vacancy at 20.4%. Gains of 0.9% and 1.5% currently are projected for the asking and effective average lease rates for the year. Additional improvement is expected for 2013. The tech sector bears watching for its potential significant contribution to demand.


  • The $74 million, 344,500-square-foot Primerica, Inc., headquarters project is under way at Duluth Highway and Highway 120 in northeast suburban Duluth (within Reis’ Northeast Gwinnett/I-85/I-285 submarket). The Gwinnett Daily Post has reported a November 2011 groundbreaking. Reis expects completion in April 2013.