Bill Weghorst

ATLANTA—Boosted by a strengthening job market, Atlanta’s office leasing activity followed up a solid performance in 2013 with an impressive first quarter 2014, according to PM Realty Group’s Q1 Atlanta Office Market Report. What’s driving the activity? caught up with Bill Weghorst, executive vice president of PM, to get his take on that and more in part one of this two-part exclusive interview. Be sure to return to this afternoon’s Southeast edition, where he will discuss where and when he expects to see a significant wave of new office development—and more. How would you describe the state of the Atlanta office leasing market?

Weghorst: Solid employment growth has fueled leasing demand with just over 1.1 million square feet of direct positive absorption recorded during the first quarter of 2014, bringing the trailing 12-month total to nearly 3.2 million square feet. This 12-month absorption total is the highest annual occupancy gain experienced since 2007.

In terms of employment growth, Atlanta’s economy has created 47,600 jobs for the 12 months ending April 2014, which equates to a 2% annual increase. Based on the current rate of job growth, Atlanta is expected to fully recover all jobs lost during the downturn later this year. How has the Atlanta office leasing market changed in the past two years?

Weghorst: Atlanta’s direct occupancy rate has climbed to 82.1%, an improvement from its cyclical low of 79.5% recorded just two years ago. The most notable change occurred in class A office space, where a flight to quality has caused occupancy rates to jump 310 basis points to 83.3% within the past two years.  

A shift towards space and layout efficiency is becoming more prominent. This trend is being driven by a variety of factors, including increased influence from young office workers—known as Millennials—seeking a comprehensive live-work-play environment.

The trend in recent years exhibited more tenants renewing in place as it was less expensive, less disruptive and the future was uncertain. Now, tenants are open to relocation alternatives, and for those who prefer to remain in place, landlords are more willing to allow space reductions. What is driving the activity in the Atlanta office leasing market?

Weghorst: Atlanta continues to attract relocation and expansion activity, with particularly strong growth in healthcare, technology, and the homebuilding sector, which has benefitted the office market. Recent headquarter relocations and corporate expansions include State Farm Insurance, Carter’s, Athenahealth, Airwatch, Ernst & Young, Infosys, PulteGroup and ExactTarget, which provides clear evidence of the area’s increasing attractiveness with a highly skilled and educated work force. Flight to quality has remained an on-going trend as the competitive leasing environment has encouraged tenants in class B and lower-tier class A properties to take advantage of attractive deals in discounted, higher quality buildings.