Metro Atlanta Office
Q2 2022
Atlanta Office Market Bounces Back With Strong Second Quarter After taking a small step back in Q1 of 2022, the Atlanta office market notched its third positive quarter in the last 12 months with positive absorption of 1,040,082 square feet across all property classes in Q2 of 2022. The market’s overall vacancy rate fell 40 basis points (0.4%), erasing the vacancy increase from Q1. Atlanta has seen positive absorption of over 1.8 million square feet over the past 12 months, which is the best absorption total for that period among the 10 largest office markets in the United States. Midtown was back on top as Atlanta’s best performing submarket in Q2 with positive absorption of 646,073 square feet. This was thanks in large part to Google occupying 396,761 square feet at 1105 West Peachtree, and two move-ins totaling 71,000 square feet at The Works between MacDermid Graphic Solutions and The 3rd Spot. The gains were not just limited to Atlanta’s urban submarkets, which has often been the case recently. Suburban Atlanta saw 631,934 square feet of positive absorption, led by Central Perimeter’s best quarter since 2012.
Year-to-date, Atlanta has seen no change in vacancy rate, and positive absorption of nearly 700,000 square feet.
20.1%
1,040,082
vacancy rate
net absorp Q2
4,080,749
$30.10
sf under constr
asking rent
1,819,950 net absorp last 12 months
2.9M 2.6% 3.6% ATL total nonfarm employment
ATL unemployment rate
US unemployment rate
Source: U.S. Bureau of Labor Statistics; LPC Research
AbsorptionAND and Vacancy Rate ABSORPTION VACANCY RATE
2,000,000
22%
1,000,000 0 ‐1,000,000
20%
Q4 2019
Q2 2020
Q4 2020
Q2 2021
Q4 2021
‐2,000,000
Q2 2022
18% 16% 14%
‐3,000,000 ‐4,000,000
12%
Absorption
Vacancy Rate
Source: CoStar; LPC Research
LEASING ACTIVITY There were 2.4 million square feet worth of signed leases in Q1 led by multiple large suburban deals, a change of pace after several consecutive quarters where Atlanta’s urban submarkets led the way. Truist (250,000 square feet at 900 SE Battery Ave), Transportation Insight and Insight Global (174,400 and 133,796 square feet respectively at Campus 244), and Brand Industrial Services (53,080 square feet at Galleria 600) were among the major suburban leases signed in Q2, as both Central Perimeter and Northwest Atlanta signed more leases in Q2 than any quarter since 2019. TOP LEASES Q2 2022 Tenant
Property
Submarket
Landlord
SF
Lease Type
900 SE Battery Ave
Northwest
Braves Development
250,000
New Lease
Transportation Insight
Campus 244
Central Perimeter
City of Dunwoody
174,400
New Lease
Insight Global
Campus 244
Central Perimeter
City of Dunwoody
133,796
New Lease
Brand Industrial Services
Galleria 600
Northwest
Piedmont Office Realty Trust
49,912
New Lease
Coda
Midtown
Harrison Street / Portman
38,000
New Lease
Truist
GTRI &I Pat
lpcsoutheast.com The information contained herein has been obtained from the owner of the property or from a source deemed reliable. While Lincoln Property Company has no reason to doubt its accuracy, we do not guarantee it.
METRO ATLANTA OFFICE MARKET Q2 2022
1.8% rent increase since Q2 2021
RENTAL RATES The average full-service rental rate for the Atlanta market finished Q2 of 2022 at $30.10, no change from the previous quarter. This was a 1.8% rise yearover-year, a far cry from the 5-7% yearly increases that the Atlanta market saw from 2016-2019. The gradual rise still signals a bullish long-term outlook from landlords, who have had to provide significantly higher concessions in the short-term to attract and retain tenants thanks to rising tenant improvement costs. Global supply chain problems and continued cost increases for raw materials have made space build-outs longer and more expensive.
ATLANTA MARKET RENTAL RATES Atlanta Market Rental Rates
$34.00 $32.00 $30.00 $28.00 $26.00 $24.00 $22.00 $20.00 $18.00
Class A Q2 2019
Q2 2020
Class B
Market Avg
Q2 2021
Q2 2022
Source: CoStar
INVESTMENT SALES
$228 avg transaction price/SF
OFFICE INVESTMENT SALESSales VOLUME Office Investment Volume
Atlanta saw over $4.9 billion in office investment sales in 2021, the largest figure for the market since 2014. With over $2 billion in sales this year, 2022 is off to a similar pace. However, uncertainty in the debt markets appears to be cooling off the investment sales markets. The average market sale price per square foot has risen to $228, an 8.6% increase over the past year. Q2 was highlighted by two sales in Buckhead: The Pinnacle and 1025 Lenox Park. The Pinnacle was purchased by State Teachers Ohio for $220 million ($511/ sf), while 1025 Lenox Park was bought by The Simpson Organization for $148 million ($448/sf).
$1.8B $1.6B $1.4B $1.2B $1.0B $0.8B $0.6B $0.4B $0.2B $0.0B
2020 Q3
2020 Q4
2021 Q1
2021 Q2
2021 Q3
2021 Q4
2022 Q1
2022 Q2
Source: CoStar
RECENT INVESTMENT SALES Property
Submarket
Price
SF
$/SF
Bank of America Plaza
Midtown
$380,000,000
1,351,586
$281
Mar 1, 2022
CP Group
The Pinnacle
Buckhead
$220,000,000
430,124
$511
May 18, 2022
STRS Ohio
3630 Peachtree
Buckhead
$202,000,000
438,910
$460
Jan 14, 2022
Granite Properties
1025 Lenox Park - Bldg B
Buckhead
$148,500,000
331,013
$448
Apr 13, 2022
The Simpson Organization
Central Perimeter
$34,500,000
207,291
$166
Feb 15, 2022
Velocis
900 Ashwood
Date
Buyer
NEW PRODUCT DRIVING SUBURBAN DEMAND Atlanta’s well-documented “flight to quality” since the onset of the COVID-19 pandemic in 2020 has seen new in-town construction in areas such as Midtown and Buckhead grab the headlines. With 80% of the product under construction in the Atlanta market currently in urban submarkets, combined with recent high-profile deliveries such as 1105 West Peachtree and Coda, it is easy to skip over suburban Atlanta when surveying the new product landscape across the Atlanta market. Even though they take up a smaller share of the market, new build, renovations, and even spec suites have proven to be massively successful in suburban submarkets, just on a lesser scale than their urban counterparts. Many of the large Class A move-ins that have taken place in suburban submarkets over the past year have shared the theme of new or renovated product. Lincoln Property Company Associate Robert deGolian says that new suburban construction has become the key to landing a headline tenant: “Many of the larger deals, even going back to 2019, are moving into new construction. Papa John’s and TK Elevator inked deals at new buildings adjacent to The Battery in the Cumberland/Galleria submarket, and more recently, Nolan Transportation Group and Insight Global signed leases at Campus 244 in Central Perimeter, a renovation of a building originally built in 1977. As commodity office buildings in the suburbs continue to struggle, and sublease availability continues to rise, new product has almost become a necessity to land a big fish.” DeGolian adds that he has even seen this trend at a micro level, with spec suites competing better against the sublease space in suburban markets: “We are encouraging owners to build out more spec suites and have already seen great success with them in submarkets such as Central Perimeter. They help us compete directly with sublease space which might be more move-in ready than traditional product, and accelerates our speed to lease commencement, another advantage sublease space has had.” With more suburban owners thinking outside the box with both their suites and wholesale renovations like Campus 244, deGolian says “suburban Atlanta is starting to see increased activity, which will only continue as more owners green-light development and renovation plans in order to compete.”
lpcsoutheast.com The information contained herein has been obtained from the owner of the property or from a source deemed reliable. While Lincoln Property Company has no reason to doubt its accuracy, we do not guarantee it.
METRO ATLANTA OFFICE MARKET Q2 2022
DEVELOPMENT OUTLOOK
27
4.1
buildings
SF UNDER CONSTRUCTION
2
msf under construction
Midtown Downtown
Q2 deliveries
Two buildings delivered and four more broke ground in Atlanta during Q2 of 2022. The deliveries were 400-500 Chattahoochee Row at The Works in West Midtown, and 680 Murphy Ave – 1000 at The Met Atlanta in the West Atlanta submarket. The Met Atlanta was also the site of two of the groundbreakings, with buildings 4000 and 5000 starting construction. 619 Ponce Office (Jamestown) and Science Square Labs (Trammell Crow Company) in Midtown and Downtown respectively also started to go vertical in Q2. Across the market, at least 41% of the product currently under construction is pre-leased.
Buckhead West Atlanta South Atlanta North Fulton Northwest Central Perimeter Northeast Northlake 0
500,000
1,000,000
1,500,000
2,000,000
Source: CoStar, LPC Research
KEY CONSTRUCTION PROJECTS Property
Submarket
Size
Owner
Expected Delivery Date
Midtown
612,947
MetLife
Q3 2022
760 Ralph McGill Blvd
Downtown
475,000
New City
Q4 2022
One Phipps Plaza
Buckhead
388,063
Simon Property Group
Q3 2022
Science Square Labs
Downtown
364,871
Georgia Tech
Q1 2024
Midtown
320,089
Greenstone Properties
Q3 2022
Midtown
274,974
Lincoln Property Company
Q2 2023
West Atlanta
223,851
Third & Urban
Q3 2022
Midtown Union
14th & Spring 765 Echo (Echo Street West) Westside Paper
OFFICE SUBMARKETS
NORTH FULTON
NORTHWEST
CENTRAL PERIMETER
NORTHEAST
BUCKHEAD
WEST ATLANTA MIDTOWN
DOWNTOWN
NORTHLAKE
SOUTH ATLANTA
lpcsoutheast.com The information contained herein has been obtained from the owner of the property or from a source deemed reliable. While Lincoln Property Company has no reason to doubt its accuracy, we do not guarantee it.
METRO ATLANTA OFFICE MARKET Q2 2022
MARKET STATISTICS
BY SUBMARKET
Total Inventory SF
Direct Vacancy Rate
Sublease Vacancy Rate
Total Vacant SF
Vac Rate Q2 ‘22
Vac Rate Q1 ‘22
Net Absorp Q2 ‘22
Net Absorp YTD
Deliveries YTD
Under Constr
Avg Rent (FSG)
517,814
$37.78
BUCKHEAD Class A
17,687,069
22.7%
1.6%
4,300,319
24.3%
23.4%
(160,697)
(166,062)
-
Total
21,144,861
20.6%
1.4%
4,651,724
22.0%
21.1%
(194,261)
(198,408)
-
Class A
14,019,022
22.6%
1.3%
3,360,729
24.0%
23.8%
(21,943)
(15,786)
60,000
1,009,103
$30.91
Total
21,699,701
19.0%
0.9%
4,301,690
19.8%
19.6%
(43,664)
4,670
60,000
1,075,421
$30.74
21,754,326
21.9%
1.1%
5,002,102
23.0%
25.4%
592,855
541,495
100,000
1,675,184
$41.66
575,814 $36.90
DOWNTOWN
MIDTOWN Class A Total
25,838,844
19.8%
1.1%
5,384,531
20.8%
23.0%
646,073
634,911
100,000
1,707,009
$41.00
68,683,406
19.8%
1.1%
14,337,945
20.9%
21.4%
408,148
441,173
160,000
3,358,244
$36.88
Class A
18,896,090
25.1%
2.1%
5,133,453
27.2%
28.6%
262,346
198,963
-
38,136
$32.03
Total
25,302,057
22.1%
1.7%
6,036,088
23.9%
25.3%
362,004
303,734
-
38,136 $30.95
12,910,622
23.0%
3.2%
3,389,130
26.3%
26.0%
(25,992)
(126,727)
-
23,530
$27.46
23,966,092
19.9%
2.9%
5,455,001
22.8%
22.3%
(102,822)
(206,290)
-
91,030
$25.76
Urban Total CENTRAL PERIMETER
NORTH FULTON Class A Total NORTHEAST ATLANTA Class A
6,809,771
21.0%
0.8%
1,489,769
21.9%
23.1%
82,929
28,970
-
35,580
$22.78
Total
19,135,664
15.6%
1.0%
3,163,103
16.5%
17.5%
183,789
35,086
-
35,580
$21.02
NORTHWEST ATLANTA Class A
15,678,839
18.6%
1.8%
3,202,486
20.4%
21.3%
140,188
111,178
-
-
$30.05
Total
29,445,266
16.6%
1.4%
5,275,505
17.9%
18.6%
201,481
78,858
-
43,367
$27.09
16,112,544
19.7%
0.5%
3,261,453
20.2%
20.0%
(33,985)
(57,202)
530,000
-
$23.45
10,157,858
9.8%
0.1%
1,001,875
9.9%
10.0%
16,424
75,297
54,000
163,000
$21.63
NORTHLAKE Total SOUTH ATLANTA Total WEST ATLANTA Total
2,304,545
30.2%
0.0%
696,154
30.2%
25.2%
5,043
24,210
161,300
351,392 $30.40
126,424,026
18.3%
1.4%
24,889,179
19.7%
20.1%
631,934
253,693
745,300
722,505
$26.35
195,107,432
18.8%
1.3%
39,227,124
20.1%
20.5%
1,040,082
694,866
905,300 4,080,749
$30.10
Class A
113,509,905
22.6%
1.7%
27,522,453
24.2%
24.9%
855,758
552,106
690,000
3,523,198
$32.75
Class B
66,980,906
15.0%
1.0%
10,716,472
16.0%
16.1%
222,963
132,670
215,300
557,551
$22.28
Class C
14,616,621
6.7%
0.1%
988,199
6.8%
6.5%
(38,639)
10,090
-
-
$19.70
195,107,432
18.8%
1.3%
39,227,124
20.1%
20.5%
1,040,082
694,866
905,300 4,080,749
$30.10
Suburban Total Total Market BY CLASS
Total Market Source: CoStar, LPC Research
Lincoln Property Company Atlanta tracks Class A, B, and C office buildings that are 10,000 square feet or greater, and excludes owner occupied, medical, and government buildings.
Spencer Papciak Research Manager 678.498.7676 spapciak@lpc.com
Lincoln Property Company Southeast 3405 Piedmont Road, Suite 450 Atlanta, GA 30305 404 266 7600
About LPC SE: Lincoln Property Southeast is a commercial real estate firm offering a comprehensive suite of value-added services for our clients. With our substantial local presence and history in the Southeast region, we are ideally situated to provide a superior service, which comes from knowing the goals and challenges faced by our clientele: tenants, investors, lenders and owners of commercial real estate. Our people and our philosophy are the key ingredients for Lincoln’s solid track record of success. The information contained herein has been obtained from the owner of the property or from a source deemed reliable. While Lincoln Property Company has no reason to doubt its accuracy, we do not guarantee it.
lpcsoutheast.com