Breaking Records

Atlanta Offices 2016

By Erica Rascón on Jan 19, 2016 in News

It’s the perfect combination: a boost in local jobs, diminishing office supply, and rising rents. The three have positioned the Atlanta office market for a record-breaking year.

With a conservative lens, JLL lists the Atlanta office space vacancy rating at 17.5 percent and average rents of $22.54 per square foot. Transwestern confidently states a 15.9 percent vacancy rate and average rates closer to $25. In both scenarios, this quarter marks one of the highest asking rents in nearly 30 years.

There is still room to grow. Conditions suggest that asking rents could approach $30 per square foot:

PM Realty Group estimates that Atlanta broke its 2000 occupancy gain record. The market totaled almost 3.7 million square feet of office space absorption for 2015. The resulting 14.2 percent vacancy rate for Class A properties broke a 15-year low, according to Transwestern. Atlanta’s Class A direct occupancy rates broke a 14-year record, increasing by 300 basis points to 86.7% over the prior 12 months.

Class B office space accounted for 29.7% of the total net absorption for 2015. Just three years ago, Class B office product saw negative absorption in Atlanta.

Demand for quality office space in Atlanta continues to grow. BisNow reports that Metro Atlanta is expected to add 60,000 jobs per year for the next few years. Nearly 25 percent will be “premium” jobs that require office space—yet only 885,000 square feet of office space is under construction for the year.

If 885,000 square feet doesn’t sound like a game-changing amount of space to you, you’re not alone. It’s barely a drop in the preverbal bucket. With the exception of residential, many investors still see real estate as a risky investment. Funding for new construction remains scarce, which means that existing Class A properties could approach the $30 per square foot mark without much resistance. Though high for Atlanta, such prices would come in at less than half of the rents tenants are asked to pay in other major markets, such as LA and NY.

The limited supply addition isn’t enough to satiate demand. It does show that the purse strings are loosening ever so slowly. Atlanta’s fertile conditions seem to have sparked the attention of investors. In 2016, investors directed $4.71B into commercial properties in Atlanta. We can reasonably hope that there is more where that came from.