Is This the 'New Norm' for Atlanta Office?

ATLANTA—If you are an office landlord, this might be some of the best news you've heard in over a decade. Class A office vacancy dropped to 15.2% in the second quarter, according to CBRE's latest research.

That's the lowest class A vacancy Atlanta has reported 2001. As Class A office space makes up about two-thirds of the overall Atlanta office inventory, this drop is especially significant.

David Lanier, CBRE Atlanta senior managing director, is bullish about how this bodes for the future: “The rapid rise in rental rates and absorption levels coupled with a much more disciplined development community, creates a market dynamic that many of us have not witnessed in our careers, giving the feeling that we are experiencing a 'new norm' for the city.”

Overall vacancy posted its lowest level in 14 years, dropping to 18.1%. The second quarter also saw a strong growth in rental rates, as expiring tenants are faced with today's renewal terms, often at much higher rates.

The overall rental rate for Atlanta increased to $21.28 per square foot from $20.91 per square foot. According to CBRE, that makes it likely that the market will continue to see rate increases throughout the second half of 2015.

Buckhead class A office product in particular has seen a substantial decrease in vacancy, dropping from 18.9% to 13.5% in just two years. Research shows that the Buckhead submarket has not experienced lower vacancy rate for Class A office since 2006.

CBRE expects a shift in vacancy will occur as Three Alliance brings 500,000 square feet to the submarket in 2016. What's more, Regent Partners and Oliver McMillian have announced plans to bring two new office buildings to Buckhead, with 550,000 square feet and 250,000 square feet, respectively. Midtown, Central Perimeter, Cumberland Galleria and North Fulton are all experiencing space tightening, which is expected to bring a new wave of development activity to these submarkets.

“This quarter's absorption was primarily made up of headquarters relocations, combined with the expansion of existing tenants,” says Dan Wagner, CBRE Southeast research manager. “Additionally, the Atlanta market will see increasing rental rates through the remainder of 2015 as class A vacancy tightens and no new office product is projected to deliver until 2016.”