GRS Group is on a growth path, and recently added a new executive to its team, in the Atlanta area. Alex Rodriguez was recently named a director of business development with the firm. Since he is based in Atlanta, we thought it would be a good opportunity to catch up with the office sector of commercial real estate in the metro area.
When there is low unemployment and tenant demand for space, it’s a formula for new development.
Office construction in and around Atlanta, especially in the CBD, has been strong over the last four years due to pent up demand, according to a recent Marcus & Millichap report (download here). The firm expects 2.9 million square feet of completions this year, up from 2.7 million square feet in 2017. That’s part of the four million square feet that was completed over the last 12 months at the end of the the second quarter. No new space had reportedly been built for four years Downtown, cutting vacancy rates and lifting rents.
Right now, there is two million square feet in the works in both the Downtown and Midtown neighborhoods. One of the highlights is a 762,000-square-foot build-to-suit headquarters for NCR Corp., which saw its first phase open early this year in the form of a complex that includes a 20-story tower.
In the first half of the year, rents increased 5.2 percent, hitting $24.08, up from 4.5 percent during the same year-ago period. Meanwhile, the Downtown area saw rent-rate spike of 9.9 percent, reaching $23.68.
On the leasing front, JLL’s second report, pointed out some large deals during the first half. Industrial distributor HD Supply moved into the Encore Center, taking up 220,000 square feet over the period. The firm also points to leasing growth by WeWork in the Midtown and Buckhead neighborhoods, taking up 250,000 square feet.Mercedes-Benz also opened its U.S. headquarters, in suburban Sandy Springs in March. It totaled $90 million and is 200,000 square feet.
Vacancy for offices metro wide was at 16.3 percent year over year, rising 50 basis points from the same year-ago period, according to Marcus. Much of the pain is being felt in suburban markets, where most of the new construction is being built and outpacing demand. However, JLL points out that much of the work being done in the suburbs could pay out in the long run, though, because many spaces are being converted into creative office. As a result, JLL predicts increased leasing absorption in the second half.
On the investment front, Marcus reports that out-of-state investors area competing with local buyers for office assets area wide. Competition is especially strong in the Downtown area along Peachtree Street, where investors are getting a five-percent return in the first year.
So, a slight increase in vacancy due to new construction obviously isn’t scaring away parties from the transaction market.