Recent trends in Atlanta’s office market paint a picture of both relief and ongoing challenges as leasing activity begins to rebound after pandemic-induced hesitancy. According to new data from real estate services firm CBRE, the available office space in the region saw a decrease in the first quarter of this year, primarily due to a rise in new lease signings. By the end of March, roughly 32.5% of all office space in Atlanta was either vacant or available for rent, a figure that remains near historic highs, yet the increase in leasing activity signals a recovering market.
Chris Thomson, a senior field research analyst at CBRE, expressed optimism regarding the situation, stating that the hesitance reflected during the pandemic seems to be dissipating. He noted that some significant deals that had been anticipated earlier are finally coming to fruition, suggesting a positive shift in the market landscape.
In the context of this revival, several companies have stepped forward with plans to expand their operations within the Atlanta metro area. Notable examples include AIG, TriNet, and Duracell, the latter of which is establishing a new global research and development headquarters in Georgia Tech’s life sciences district. The project, named Science Square, is projected to create around 110 jobs and has benefited from considerable financial support from state incentives.
Ticket reselling giant StubHub has also announced its expansion into the region, subleasing almost 56,000 square feet at 7000 Central Park in Sandy Springs. Chris Godfrey, a principal of office leasing in Atlanta for Avison Young, noted a trend where companies that had been downsizing their office spaces since the pandemic are now reversing course.
As occupancy dynamics unfold, a notable trend has emerged: not all office buildings are faring equally well in attracting tenants and investors. The distinction is clear between top-quality office spaces, often referred to as trophy or class A properties, and their lower-tier counterparts, known as class B buildings. While leasing activity across all property classes saw a decline after 2022, class A properties experienced a resurgence in 2024, contrasting sharply with the continued struggles of class B buildings, as reported by Cushman & Wakefield.
Godfrey emphasized this divide, illustrating that only properties with strong ownership and financial backing can execute deals successfully. Conversely, many lower-quality properties languish in a state of stagnation as their owners grapple with financial uncertainties. The market has witnessed a fair number of distressed properties being either returned to lenders or sold at discounted prices to avoid foreclosure.
In mid-April, student housing developer Landmark Properties acquired the Northcreek Office Park in Buckhead for nearly $78 million, a 20% reduction from its price during its last sale in 2016. Similarly, the Atlanta Braves obtained Pennant Park, a 34-acre suburban office complex, for $93 million, which was only a slight premium over its previous sale despite ongoing development in the surrounding area.
Reed Kracke, a partner at Charlotte-based Asana Partners, highlighted a trend among banks and institutional investors seeking to offload underperforming segments of their office portfolios. These assets present opportunities for savvy investors willing to commit resources to refresh and revitalize properties that may otherwise remain vacant.
“Institutional players are stepping away from the office market to reduce their exposure,” Kracke commented. “They are often less concerned about the sale price, creating opportunities to reinvest in potentially undervalued assets.”
However, the struggles are far from over for a significant portion of the office market. A considerable share of Atlanta’s vacancies is concentrated in older buildings located in less desirable areas. Analysts have indicated that these high-vacancy offices heavily impact overall market performance, with the more desirable class A towers managing to command rising rents despite the challenges faced elsewhere.
The region has experienced negative absorption in eight of the last nine quarters, a measure indicating a contraction in the office rental market, as stated by CBRE. In light of this trend, Godfrey pointed out that the amount of unleased trophy spaces has been gradually declining, a notable 4.7% drop over the past year. For the overall reduction in unwanted office space to be sustainable, many buildings may need to either be demolished or undergo significant conversions to alternate uses, such as residential.
Godfrey noted with enthusiasm that demolitions could be a positive development for the office landscape, as they help balance the market without incurring the costs typically associated with conversion projects.
Moreover, there is a silver lining as analysts speculate that the sluggish demand for office space over recent years has led to a pause in new office construction. Notably, no new office buildings completed construction in the first quarter of this year, with only about 474,000 square feet of office space currently under construction.
Audrey Giguere, research manager for Cushman & Wakefield, observed that the decrease in new supply, coupled with the influx of large to mid-sized companies entering the market, is instrumental in pushing down the vacancy rates. As the Atlanta office market navigates through these complexities, it is clear that while some companies are eager to expand and invest, a significant portion of the market still faces considerable challenges.
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