The Atlanta economy continued the momentum of healthy job growth. Metro Atlanta added 74,000 non-farm jobs year-over-year since the third quarter of 2016. The unemployment rate dropped 60 basis points to 4.5 percent from 5.1 percent a year ago. Employment in the office-using sectors grew 6.0% year-over-year and continues to support demand for office space throughout metro Atlanta.
The Atlanta office market experienced continued positive momentum through the third quarter of 2017. Overall average asking rental rates climbed to a new record of $24.72 per square foot (psf), an increase of $0.62 psf from last quarter’s record of $24.10 psf. Buckhead leads all submarkets with the highest Class A rate of $34.27 psf, the first time in Atlanta’s history that a submarket’s Class A rates surpassed $34 psf for two consecutive quarters.
The Atlanta overall vacancy rate in the third quarter of 2017 remained steady at 16.7%. Atlanta added only 218,000 square feet of deliveries this quarter after the near-record 1.3 million square feet delivered in the second quarter of 2017. Overall net absorption for Atlanta dropped significantly from the second quarter’s 405,038 square feet of occupancy gains but remained positive for the second consecutive quarter at 67,544 square feet. The urban core of Buckhead, Midtown, and Downtown submarkets experienced negative absorption of -21,168 square feet, which partially offset the suburban submarkets’ 89,000 square feet of positive absorption.
The relatively flat absorption market-wide conceals significant movement in the submarkets, six of which had positive absorption, and nine of which had negative absorption. The urban core had negative overall absorption for the first time since the second quarter of 2013. The Northwest submarket led all submarkets for the second consecutive quarter with 196,000 square feet of absorption. Buckhead had its worst quarter for absorption since the third quarter of 2003 with -163,000 square feet of negative absorption due to several large tenant move-outs.
Leasing activity continued its momentum with over 2.4 million square feet of leases signed. The Central Perimeter submarket dominated leasing activity for the second consecutive quarter with 500,056 square feet. Georgia 400/North Fulton was a close second at 458,160 square feet of leasing activity, followed by the Midtown submarket with 407,728 square feet
Atlanta currently has over 3 million square feet of office buildings under construction, with 59% of the activity in the Midtown submarket. 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. The northern submarkets of Central Perimeter, Georgia 400/North Fulton, and Cumberland/Northwest dominate the construction activity in the suburbs. Ninety-one percent (91%) of the 1.14 million square feet of suburban construction are in these three submarkets.
An overall flat market in terms of vacancy, leasing activity and absorption masks significant outcomes, both positive and negative among the submarkets. With 1.59 million square feet of new inventory and continued record rents, we expect the Atlanta market to build off of its momentum moving forward. With the delivery of 2.3 million square feet of speculative product over the next two years, the Atlanta office market will leverage its diverse economy and economic growth in order to flourish in the future.
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