Who Has Power in Atlanta Office Market?

ATLANTA—Who has the power in the Atlanta office leasing market—landlord or tenant? The answer to that question may depend, in part, on whom you ask.

GlobeSt.com caught up with Bill Weghorst, executive vice president of PM Realty Group, to see what he thinks in part two of this exclusive interview. He also predicts when and where he expects to see a significant wave of new office development in Atlanta, and what business, economic and real estate trends should people be watching that will impact the future of the Atlanta office leasing market. You can still read part one: The Most Notable Change in Atlanta's Office Market.

GlobeSt.com: Who has the power in the Atlanta office leasing market—landlord or tenant? Why?

Weghorst: The lack of upward pressure on rental rates in some submarkets suggests that tenants continue to hold bargaining power, but the tide is changing as landlords are now offering fewer concessions and rental rates have been trending upwards in the most desirable submarkets such as Central Perimeter, Buckhead & Midtown.   

Steady demand has depleted the supply of large contiguous space options, causing class A asking rents to climb in these submarkets. Most notably, the Central Perimeter submarket has seen class A rents rise by 7.1% to $24.09 per square foot within the past 12 months.

GlobeSt.com: Where and when do you expect to see a significant wave of new office development? What must happen before this wave occurs?

Weghorst: The first office building to come out of the ground will likely be Tishman Speyer's Three Alliance Center, a proposed 500,000-square-foot class A building in Buckhead, with expected delivery in mid-2016. This premier submarket impressively delivered just over 3.2 million square feet of new inventory during the last building boom from 2007 to 2010, but is primed for new construction as the cumulative class A occupancy levels among this new inventory is nearing the 90% mark and the newest of these buildings is now quoting over $35.00 per square foot.  

Central Perimeter is the likely next location for new office development as large contiguous blocks of space have become scarce largely due to State Farm, but the insurance giant's looming 2.2 million-square-foot campus have kept developers more restrained than in previous cycles even with the submarket's class A direct occupancy rate at 88.5%. However, there are several large tenants scouting the market who could kick off a development, such as Intercontinental Hotel Group, AIG or NCR to name a few.

Among the developers that could move forward with a new office tower include Ackerman & Co at its Abernathy 400 site, Manulife's 18-acre mixed-use site next to Ashford Green office building, which calls for a 250,000-square-foot office building and Hines Interests' 100 Northpark, a site off Abernathy Rd that could accommodate 1.5 million square feet of office.

GlobeSt.com: What business, economic and real estate trends should people be watching that will impact the future of the Atlanta office leasing market?

Weghorst: Atlanta is benefitting from its strengthening demographics. With the region's population growth rate once again among the fastest in the US, the expanding consumer and labor force will continue to attract retailers, manufacturers and companies in other sectors.  

A high concentration of college-educated workers will continue to attract high-tech companies in life sciences, research and development, IT, professional and business services, and high-tech manufacturing. In addition, the costs of living and doing business in the Atlanta metro area are relatively low, and the pool of talent is large and deep for occupations that do not require college degrees. Moderate job growth and limited development are expected to continue throughout 2014, which will lead to a tighter market for quality space and further rent growth in the most desirable submarkets.