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ATLANTA-Despite existing 20% office vacancies in some metro area submarkets, Marcus & Millichap regional manager John M. Leonard expects improvements in leasing activity, rents and investment sales interest in 2004. Leonard was just as bullish on the area’s multifamily market which GlobeSt.com reports last week.

“Atlanta is nearing the bottom of the cycle,” the broker says. “Expectations for declining construction activity and an employment gain of 25,000 office workers will push vacancy down” in 2004, Leonard predicts. His firm’s quarterly growth analysis of 38 metro markets places the city 15th on the list.

After two years of job losses, “Atlanta-area employers are on track to add more than 39,000 jobs in 2003,” the M&M executive says. “Forecasts call for an additional 69,000 workers in 2004.”

Construction completions are estimated to drop 50%, to 1.5 million sf in 2003. “A further reduction, to 644,000 sf, is expected in 2004 as developers continue to delay and defer projects in the face of weak fundamentals,” Leonard says.

A marked improvement in employment in 2004 will nudge vacancy down 70 basis points, to 19.5%, the broker says. The class B sector is expected to report a slight increase in vacancy, to 17.7% by year end and a projected decline of 40 basis points in 2004.

For the rest of this year, however, the office market “will remain mired in a pronounced contraction as vacancy rises an estimated 150 basis points, to 20.2%,” Leonard says.

Effective rents are expected to slide by 3.7% for the remainder of this year, to $15.49 per sf. But in 2004, effective rents should post “a marginal increase,” the first gain in four years, Leonard predicts.

Asking rents for class B properties in 2003 are anticipated to decrease by 2%, to $16.35 per sf, and to remain at that level through 2004. “Class A owners will experience a similar decline of 2%, to $21 per sf, in 2003, and are not expected to realize rent growth in 2004,” the M&M executive says.

On the investment sales side, Leonard expects “riskier assets in second-tier office locations will attract increased investor attention in 2004 as market fundamentals improve.” Class B and class C properties in the Northlake/La Vista, Fayette/Coweta County and North Clayton/Airport submarkets should draw additional investor interest.

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