Atlanta’s Office Market Hits a Crossroad: Rents Stabilize Amid Vacancy Crisis
Atlanta is bustling with activity, but the **office market** appears to be hitting a tricky patch. While shiny, brand-new office towers still attract tenant attention, some analysts believe the **rent-raising spree** might be approaching its limits. Recent data shows that the **vacancy rate** for Class-A and trophy office spaces has surged to a staggering 28.9%, a record high as of the third quarter of this year, according to Avison Young.
Shifting Preferences Among Tenants
Interestingly, it seems that tenants are willing to take a detour away from the most lavish towers. Heather Lamb, a senior vice president at Highwoods Properties, noted that many businesses are opting for **renovated older buildings**—those spruced up since 2000—rather than paying hefty Class-AA rents. “What I’m seeing is tenants would rather go into a renovated, older building than pay the Class-AA trophy [rents],” Lamb mentioned.
This shift in preference has prompted developers to sweeten the pot with **larger tenant improvement packages** and offering periods of **free rent** to attract businesses. As Lamb highlighted, “They’re likely higher than what they pro forma-ed.” On average, Class-A office rents in the Atlanta area have remained flat year over year at just over **$33 per square foot**. However, in the key central business districts like Downtown, Midtown, and Buckhead, rents have dipped slightly to **$37.08 per square foot**—a trend that doesn’t seem to be changing drastically any time soon.
Stagnation in New Developments
While shiny new buildings are still being constructed, the overall number has dwindled, with **2.1 million square feet** ongoing, and a whopping **55% of that still vacant**. Alarmingly, half of the office space built since 2022 is sitting empty. Two major projects, 1050 Brickworks and Spring Quarter, are set to come online soon—fully unoccupied.
Despite these vacant spaces, a noticeable trend is emerging: a “**flight to quality**.” In Q3, landlords of Class-A properties captured nearly 70% of leasing activity, while absorption in the market exceeded **500,000 square feet** for the first time since last year. This trend reflects a notable shift in corporate strategy, as companies reassess their workspace requirements due to the rise of hybrid work models. “It’s a flight-to-quality issue,” said Keith Mack of Gibraltar Capital Partners, emphasizing that amenities and location are critical when scouting for new office spaces.
Record Rents Amidst Vacancy
Even with troubling vacancy rates, developers of premium **trophy properties** have found a way to keep rents high. Rental prices for trophy spaces have climbed to **almost $45 per square foot**, up $5 since 2020. As Haley Leek, a market intelligence analyst, pointed out, “Despite the overall leasing malaise in Atlanta’s office market, those record rents have not deterred tenants from paying them.”
The Human Factor: Employee Happiness
It seems that location matters more than cost for many companies. “If a tenant wants to be in those hot spots, they will do what it takes because they want their employees to be happy,” Leek remarked. The eagerness to have a prime spot has drawn firms like **HNTB**, an engineering company, to shift from its long-time downtown headquarters to the new **14th + Spring tower** in Midtown.
A Glimmer of Hope in Tenant Activity
Despite an overall shift toward downsizing—companies needing **over 75,000 square feet** typically reducing their space by **15% to 20%**—some segments of the market are experiencing growth. Lamb noted that smaller companies, particularly those needing space less than 70,000 square feet, are in expansion mode. “We’re seeing expansion happening in that range where people gave back too much and they need more space,” she shared. This trend marks a bright spot amid a cloudy economic landscape.
In Summary
The Atlanta office market is at a fascinating junction, where daylight and twilight meet. Even as vacancies rise and new developments struggle for tenants, the **demand for quality spaces** continues to fuel a vibrant leasing landscape. Corporate decisions about workspace needs indicate a hopeful future, suggesting that there’s more to this story than meets the eye!
