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ATLANTA-As companies tighten their belts in an attempt to keep costs low, the demand for office space in Atlanta and surrounding markets has “greatly diminished,” Todd Jeska, research manager of the Atlanta office of Encino, CA-based Marcus & Millichap Real Estate Investment Brokerage Co., says in a new market report.

He predicts the demand for fresh office space will lag until next year.

Meanwhile, several new buildings, largely unoccupied, will deter new office construction. Among them is the 377,000-sf One Overton Park property.

Georgia Pacific “has scrapped plans to build a 10-story, 450,000-sf building downtown,” Jeska says. And, while Coca-Cola is searching for 250,000-sf of upgraded space, “it is effectively trading office space” which will not affect overall vacancy.

Office vacancy rose 5% in 2001, and will add another 1% to 2% this year, Jeska predicts, putting it near 20% overall. This would normally lead to falling rents.

However, “on the surface,” he says, that has not been the case. “Average rent per sf rose almost 10% last year to almost $20 per sf,” he says. But that gain was more a reflection of a higher proportion of class A space than demand.

“Effective rents,” he says, “are much lower when mounting concessions and increased tenant improvement allowances are factored into the rent.” Effective rents “will be pressured down another 5% this year,” he predicts, “as new buildings and a high level of sublease space compete for tenants.”

The average sale price of office space remained steady at $95 per sf, according to Jeska, who says the price is being sustained by three class A buildings that sold last year and accounted for more than 40% of total sales volume.

“The economic recovery will help absorption toward the end of the year,” he concludes. In the meantime, he says sale prices on office space will fall an average of 5% this year.

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