Atlanta office rents have hit a new all-time high.
But, it’s not happening at one of the shiny trophy towers on Peachtree Street. The record is being set at Ponce City Market, the former Sears, Roebuck & Co. warehouse at the heart of Atlanta’s urban renaissance in the city’s historic Old Fourth Ward.
Ponce City Market is breaking $50 a square foot, according to people familiar with the latest leases in the mixed-use project. The last slivers of office space will be leasing for up to $53 a foot.
Aileen Almassy, a managing director with real estate broker Cushman & Wakefield, could not discuss the tenants but said the latest deals north of $50 a foot could be announced in coming weeks.
“It’s a new high water mark,” Almassy said. “For a long time people thought Atlanta couldn’t break through the $40 a foot barrier. Then we exceeded $50 a foot. And to think we did it in this time frame. It’s amazing.”
It is remarkable. In the summer of 2011, German private equity fund Jamestown Properties bought the giant building for $27 million. It planned to redevelop the aging hulk of brick into a mix of stores, restaurants, offices and residences that shared parallels with New York’s Chelsea Market, also a 20th-century industrial building.
Ponce City Market also echoed another characteristic of that former Nabisco factory in Chelsea— demand from creative class companies. Now, well over a half million square feet at Ponce City Market is leased to companies such as Athenahealth, Twitter, MailChimp, and How Stuff Works. Not bad for a loft-office project that plenty of longtime real estate observers were skeptical about.
They had their reasons: Ponce City Market seemed risky because it wasn’t the typical glass office towers on Peachtree Street in Buckhead and Midtown — buildings that have lured big tenants for years.
They still do.
But, Ponce City Market proved there was pent-up demand for authentic loft office space. And, now more developers are locating their office projects in dense, walkable, urban environments, such as Colony Square in Midtown.
Others are redeveloping warehouse buildings or designing new projects in West Midtown that echo that area’s industrial roots. Even so, Ponce City Market is unique.
“One of the reasons Ponce City Market has been so successful is because of its authenticity,” said Craig VanPelt, senior research analyst with Jones Lang LaSalle Inc. “While other office developments cannot directly replicate this authenticity, they can provide similar characteristics.”
Consider how strong demand has been for Ponce City Market office space.
Jamestown originally planned 350,000 square feet of office space as part of the redevelopment. All of it leased up. Since then it’s added 200,000 more square feet. It also leased up. At 557,122 square feet, there is little room left, even as demand remains. So, Jamestown is eying the conversion of some of its event space to loft offices.
Ponce City Market also reflects the overall rent growth Atlanta is experiencing. The most expensive blocks of office space range from about $41 to $45 a foot full-service, according to JLL data. Buckhead is still home to some of the highest rents in the city.
For example, Three Alliance Center, Tishman Speyer’s 30-story office tower in Buckhead overlooking Georgia 400 rents for somewhere between $43 and $45 per foot, according to JLL.
Outside of Ponce City Market, Three Alliance has the highest rents in the city. Terminus 100, also in Buckhead and developed by Cousins Properties Inc., has a nearly 119,000-square-foot office block that rents for $41 a foot. Another Buckhead tower, 3344 Peachtree, also owned by Cousins, rents for just under $43 a foot.
Tishman Speyer managing director Chris Ahrenkiel has said Ponce City Market is good for Atlanta because it helps break a rent barrier few expected the city could exceed so quickly.
That makes investors look more favorably upon Atlanta, a city known for almost no rent growth because of its tendency to overdevelop. For decades, every time office rents climbed, developers found another site and built another tower. That’s changed since the end of the Great Recession. Since then, spec office development has been muted by Atlanta’s standards.
Overall rents have responded, and a rare landlord’s market has unfolded. In fact, Atlanta’s suburban and urban office districts ranked among the top five in U.S. growth, according to a new report from CBRE.
In the city, Buckhead and Midtown office rents were up 7.5 percent year-over-year.
– Article by Douglas Sams, Atlanta Business Chronicle