Office-Leasing Picture Remains Blurred

The 371-building, 83-million-sf class A market is 24.7% vacant with 1.2 million sf of new product under construction. The 70-million-sf class B market, comprised of 1,216 buildings, is 19.9% vacant with 260,994 sf of new construction under way. And the seven-building, 262,888-sf class C sector, with no new construction on tap, is 20.6% vacant. There is a total 36.2 million sf of available office space on the market.

Worse, net absorption grew to a negative one million sf, up from a negative 900,000 sf in fourth quarter 2003. Buckhead, Midtown and Northlake are the only submarkets showing positive absorption. Most of the new construction is in Midtown where the 138-acre, $200-million Atlantic Station redevelopment continues to be the driving engine of the area's new growth pattern, area brokers tell GlobeSt.com.

A lack of strong office leasing demand has also battered the market, says Colliers Cauble research coordinator Scott L. Amoson who authored the first-quarter report.

"A significant majority of the negative absorption and vacancy this (past) quarter can be attributed to Alltel's decision earlier this year to consolidate its office space in suburban Alpharetta to its Little Rock, AR headquarters," Amoson says. The other factor affecting first-quarter absorption and vacancy was the increase in sublease space.

"This increase can be attributed to companies such as Hewlett Packard and Novartis Ophthalmics who decided to consolidate their Atlanta office spaces," the analyst says. However, Amoson says he doesn't expect further large company consolidations in the coming quarters "since the economy is improving."

Meanwhile, tenants are taking advantage of lower quoted rents which are averaging $18.57 per sf, down by a little over $1 per sf since the beginning of 2003. Class A rents are averaging $20.82 per sf; class B, $16.902 per sf; class C, $13.76 per sf.

The largest direct leasing deals in the first quarter saw Microsoft signing for 47,000 sf at the Falls at Sanctuary Park and AIG taking 55,000 sf at Brookside Concourse 100.

Leases involving renewals and expansions had SITA renewing for 163,000 sf at Cumberland Center II and Blue Cross/Blue Shield renewing 265,000 sf at One Capital City Plaza.