Area's Office Absorption Best in Three Years

But the city's office market still has a long way to go, the numbers suggest. For example, Advantis Real Estate Services Co./GVA says metro's 19.7% overall vacancy is the highest in the Southeast, even with a two-point improvement from last year. Marcus & Millichap Real Estate Investment Brokerage Co. has dropped Atlanta's annual ranking on its 42-market National Office Index to No. 30 from No. 15 a year ago.

The two reports, however, remain positive on the area's near-future growth. "With the exception of Delta layoffs, most economic indicators in the Atlanta region are positive," maintains John M. Leonard, vice president and regional manager of Marcus & Millichap's Atlanta office.

Leonard argues "the metro is still a hotbed of population growth, as four of the 10 fastest-growing counties in the nation are located in the metropolitan statistical area." He says "these strong demographics and current economic expansion are attracting both institutional and private investors to the local office market."

The Advantis study, however, finds that "despite improving economic conditions, a sure sign of corporate growth and expansion, the Atlanta area did not have a corporate giant make the move here in 2004."

One Fortune 500 company, Newell-Rubbermaid, did relocate a portion of its executive operations to Atlanta from Freeport, IL and took a large amount of space in the Central Perimeter submarket.

What concerns Advantis most is the continued migration of the city's largest law firms from Downtown to Midtown. "The firms of Powell Goldstein LLP and Jones Day made their moves to Midtown in 2004, and the trend will continue into 2006 when King & Spalding LLP will vacate its space at 191 Peachtree to occupy 440,000 sf in 1180 Peachtree," Advantis cautions. Houston-based Hines is completing that 681,000-sf building in Midtown.

Marcus & Millichap's Leonard is confident that "increasing office employment will contribute to a decrease in vacancy to 18.6% this year." He says "the availability of inexpensive land and financing is spurring some tenants to develop or purchase their own buildings."

On the rent side, Leonard says effective rents (after concessions) will increase 0.5% to $16.38 per sf, the first increase since 2000. The Advantis report, however, notes rental rates "have remained flat over the past two years and average $18.63 per sf."