The Atlanta economy continued its momentum with healthy job growth. Metro Atlanta has added 82,400 non-farm jobs since the second quarter of 2016. The unemployment rate dropped 30 basis points to 4.8 percent from 5.1 percent a year ago. Employment in the office-using sectors grew 5.1 percent year-over-year and continues to boost demand for office space throughout metro Atlanta.
The Atlanta office market experienced continued positive momentum to start the first half of 2017. Overall average asking rental rates continue to reach new heights. During the second quarter of 2017, overall average rates climbed to a new record of$24.10 per square foot (psf), an increase of $0.59 psf from last quarter’s record of $23.51 psf. Buckhead leads all submarkets with the highest Class A rate of $34.63 psf, the first time in Atlanta’s history that Class A rates have eclipsed $34 per square foot.
Because of a large influx of new deliveries, Atlanta’s overall vacancy rate in the second quarter of 2017 increased to 16.7percent from 16.0 percent last quarter. Atlanta added over 1.3million square feet of deliveries this quarter, which is the largest amount of deliveries since the first quarter of 2010. The Buckhead submarket experienced the most completions with 731,579 square feet of deliveries. The completion of Tishman Speyer’s 506,000-square-foot Three Alliance development made up most of the new inventory in Buckhead this quarter. 8000 Avalon also delivered 228,000 square feet of new inventory to the GA 400 submarket. Another significant completion was the delivery of Riverwood 200 in the Northwest submarket, which added another 300,000 square feet of new space. Overall net absorption for Atlanta rebounded in the second quarter with 405,038 square feet of occupancy gains versus negative overall absorption last quarter. The Northwest submarket led the pack with 210,124 square feet of absorption, followed by Midtown with 153,167 square feet of net occupancy gains. Leasing activity continued its momentum with over 1.3 million square feet of leases signed in the second quarter of 2017. The Central Perimeter submarket dominated leasing activity this quarter with 311,304 square feet of leases signed, followed by the Buckhead submarket with 194,242 square feet of leases signed.
Even after the delivery of over 1.3 million square feet of space, under-construction activity in Atlanta remains relatively strong. 3.2 million square feet of office product is underway. Coda Tech Square in Midtown is the largest speculative office project under construction at 760,000 square feet, followed by NCR’s 485,000-square-foot build-to-suit, which is expected to be completed early 2018.
Big-block space in the Atlanta office market during 2016 was relatively scarce. In 2017, the market has started to experience some relief, as over 1.3 million square feet of new inventory was added year-to-date. We expect the Atlanta market to continue to relieve the tightening of space with the delivery of 2.5 million square feet of speculative product over the next two years. These developments include the 430,000-square-foot 725 Ponce project and the 355,000-square-foot Perimeter Summit development. New deliveries will give Atlanta more options, but we expect pre-leasing activity to increase as the developments progress.
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