Landlord Concessions Spark Surge in Atlanta Office Leasing
Atlanta’s office leasing market has seen a considerable upturn in the second quarter of 2024 as landlords vie for tenants by offering lucrative deals, including rent-free periods and generous tenant improvement allowances, according to a Savills report. Despite a record-high vacancy rate, the second quarter experienced leasing activity equivalent to 2.6 million square feet, a significant increase from the 2.4 million square feet of leases signed in the first quarter and a landmark not witnessed since Q1 2019.
A Move Toward Hybrid Work Model Boosts Leasing Activity
As companies transition to a hybrid work model, they are gaining clarity on their updated office needs and are ready to make significant real estate decisions. However, an important catalyst for the burst in leasing activity has been especially appealing lease incentives presented by landlords.
Lucrative Landlord Incentives Attract Tenants
These incentives include an increase in rent-free periods, with landlords frequently offering a month of free rent for every year of a lease. This is a substantial step up from the previous flat rate of two months of free rent, regardless of the lease term. Moreover, landlords are financing tenant improvements with allowances between $115 and $120 per SF, a rise from the $70 – $100 per SF rates seen two years ago. Despite these concessions, landlords have maintained high face rents due to the continual supply of new office spaces, pushing the average asking rents up by over 5% from the previous year.
The Impact on Vacancy Rates
Despite this uptick in leasing activity, the vacancy rate across Metro Atlanta remains high, reaching 25% metro-wide and nearly 30% in central business district areas such as Buckhead, Midtown, and Downtown. The first half of the year saw 1M SF of office space return to the market and an additional 500K SF become available for sublease. Furthermore, 1.3M SF of new office space is currently under development.
Office Job Shrinkage Continues
While leasing activity has seen an improvement, Atlanta’s office job numbers continue to contract. Despite nonfarm job numbers growing from 2.5 million in May 2020 to almost 3.1 million in May 2024, nonfarm office jobs continue to decrease each quarter since mid-2023. This trend suggests that companies are reducing their square footage, and tech companies, in particular, are downsizing.
Top Leasing Deals of the Quarter
The ten biggest office leasing deals of the quarter primarily involved relocations or renewals. For instance, Southern Company Gas leased 260K SF at Midtown Center II, planning to abandon a similar footprint at 10 Peachtree Place. Similarly, Newell Brands announced its plan to relocate headquarters to the Queen building at Concourse Corporate Center, and Piedmont Healthcare significantly reduced its office footprint in its headquarters relocation to Atlantic Station.
Looking Forward
Despite the struggles office owners face, particularly those dealing with impending loan maturities, many landlords are up for the competition to secure major leases. However, others who cannot invest more capital into their buildings may dismiss smaller tenants or short-term deals. As larger companies make their real estate decisions and sign leases, smaller firms may follow suit, leading to an increased demand for office spaces.
