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ATLANTA-Job losses, vacated space that was previously leased, and empty newly delivered office projects combined with the “uncertain timing of an economic recovery, (have) caused many to doubt the vitality of the market near term,” says a second quarter 2002 Atlanta MSA office market report authored by Scott Olson, managing partner of locally based-Bullock Mannelly Partners and Michael Crawford, research director.

Long-term, they look to Atlanta’s low cost of living, affordable housing and projected employment growth for recovery.

Construction activity continued strong during 2001, particularly in the North Fulton submarket and Midtown, contributing to the current surplus. “With fading demand, Olson and Crawford note that “several projects have been sidelined or cancelled,” most notably a 453,000-sf, 10-story Georgia Pacific property planned for downtown.

Atlanta’s absorption rate turned positive in first quarter 2002 “yet remained unimpressive,” the authors say. Midtown posted the highest gain, while areas that had been strong –North Fulton, Central Perimeter, Northlake and Buckhead –all recorded negative absorption levels in this year’s first quarter.

Overall office vacancy rates have climbed steadily since they reached 13.7% in fourth quarter 2000. “Class A owners are hurting the most,” according to the report, currently averaging 19.8%. Vacancy rates at class B and C properties, are 18.3% and 18.9%, respectively.

The number of owners offering concessions “has notably increased during the last 12 months,” states the report. In addition to free rent and higher tenant improvement allowances, owners are reportedly reimbursing tenants, especially creditworthy ones, for moving costs and lease buyouts.

On average, rental rates are said to hover between $20 and $21 per sf.

As the rise in vacancy widens the gap between buyers’ and sellers’ expectations, Crawford and Olson conclude, “sales activity will likely remain flat in 2002. However, an uptick in interest rates of 200 basis points or more, could force investments to market as cash reserves dry up.”

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