Building boom made lots of room

By Gertha Coffee

The Atlanta Journal-Constitution

To get a feel for just how much empty space there is in office buildings in Buckhead, Midtown and downtown Atlanta, picture this: The 12.3 million square feet of vacancy is the equivalent of about a dozen empty Bank of America Plaza skyscrapers.

At 55 stories, that iconic Midtown building is metro Atlanta’s tallest office tower and the sixth tallest building in the United States.

The urban markets have been plagued with an overbuilding problem — particularly in Buckhead — that has inflated vacancy rates and driven down demand and rental rates, said Lanie Rea, research manager with Jones Lang LaSalle in Atlanta.

“It has impacted the urban markets much more than the suburban markets, which haven’t seen a lot of construction lately,” Rea said.

Jones Lang LaSalle analyzed 53 Class A buildings in Buckhead, Midtown and downtown Atlanta in the 2010 Atlanta Urban Skyline Review — core office buildings that truly move the market, the report said.

The opening of three new office towers this year — Phipps Tower and 3630 Peachtree Road in Buckhead and 1075 Peachtree St. in Midtown — helped push the Class A vacancy rate in Atlanta’s urban markets to 26.3 percent, up 3 percentage points from the end of 2009. That compares with a 19.5 percent suburban vacancy rate for the same period, down 0.4 percentage points from the end of 2009.

The good news, Rea said, is vacancies are not expected to climb much higher in 2010.

In metro Atlanta, “we have seen vacancy rates peak with the delivery of the three new buildings.”

Industry analysts expect commercial real estate nationwide to begin a recovery this year.

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Office market in Downtown

Represents 11.7 percent of the Atlanta office market, with 16.3 million square feet of space. The vacancy rate is 23.1 percent and the average asking rent per square foot is $19.23. Prices are down 6.1 percent from their peak. The downtown submarket has historically reported the lowest rates in urban Atlanta.

Source: Jones Lang LaSalle

Office market in Midtown

Represents 10.9 percent of the Atlanta office market, with 15.2 million square feet of space. The vacancy rate is 24.7 percent and the average asking rent is $22.99 per square foot. Prices in Midtown also have fallen in recent months and are down about 8 percent from their peak.

Source: Jones Lang LaSalle

Office market in Buckhead

Represents 13 percent of the Atlanta office market, with 18 million square feet of space. The vacancy rate is 26.6 percent; the average asking rent is $24.93 per square foot. Average rental rates in the urban markets peaked at $24.11 per square foot in early 2008. Prices have dropped. Buckhead was the hardest hit, with rents falling more than 11 percent since their peak. Still, Buckhead rents remain the highest in metro Atlanta.

Source: Jones Lang LaSalle