A recent wave of distress hitting Atlanta has translated intonew opportunities for investors and thus resulted in their movementoff the sidelines and back into the market. Investors have beenactively seeking office buildings, which are offering the mostopportunities in the current cycle. In fact, sales of distressedoffice properties at steeply discounted prices increased 65% frommid-year 2010 through mid-year 2011. Retail properties are alsofacing high levels of distress. Meanwhile, the industrial andmultifamily sectors face the least amount of distress moving into2012.

The Atlanta office market was the hardest hit of the four majorproperty types and continues to struggle as weak permanentemployment growth and reductions in square footage needed peremployee will keep vacancy above 20% through year's end. Effectiverents continue to fall, albeit at a slower pace, and concessionsremain very high as tenants find bargains and remain firmly incontrol of the market. On a positive note, high vacancy hasvirtually shut down the development pipeline, as only 564,000square feet of space came on line in the 12 months ending inmidyear 2011, representing a scant 0.1% increase in competitivefor-lease stock.

Currently there are 90 office properties, representing $2.2billion in loans, listed as distressed, the result of continuedweakness in the sector. Atlanta CMBS office loans have adelinquency rate nearly twice the national average. Twenty percentof office loans are delinquent, with more than half of thosealready in foreclosure or REO. A significant number ofoffice-building loans have matured, but are non-performing asservicers struggle with the best course of action in a verychallenging environment. The heightened level of vacancy hascrimped the overall office investment sales market, but the thirdquarter saw an increase in distress sales of both traditional andmedical office properties that may encourage further marketing ofdistressed assets in the coming months. Those properties tradinghave done so at significant discounts, which should drive investorinterest.

Continue Reading for Free

Register and gain access to:

  • Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
  • Educational webcasts, white papers, and ebooks from industry thought leaders
  • Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.