Office space rebound still on hold

By Rachel Tobin

The Atlanta Journal-Constitution

While housing prices are at 1997 levels in metro Atlanta, office rental rates are faring slightly better. But only slightly.

New commercial real estate reports say office rental rates are at 2004 levels, after ticking up in the first quarter. That shows some stabilization, said Scott Amoson, director of research for Colliers International in Atlanta, as the rate had been steadily declining.

But he and other experts believe landlords still have years to wait for major improvements in rates -- and demand to drive them -- because job growth remains lackluster in the region.

The average rental rate was $20.06 per square foot in metro Atlanta last quarter, according to data from real estate services firm Jones Lang LaSalle. Colliers reported a very small uptick to $19.22 per square foot. Real estate firms often have different numbers, based on what data they include.

The overall vacancy rate in metro Atlanta rose very slightly in the quarter to 22.5 percent, according to Jones Lang LaSalle, and to 18.3 percent according to Colliers.

David Rubenstein and Bogue Miller of CresaPartners – a firm that represents tenants looking for office space – reported “it will be some time before the markets fully recover. While new development is essentially nonexistent, there is only minimal job growth to stoke demand.”

Their report says the Atlanta job market is not expected to fully recover for three years.

They rang one note of optimism, saying it remains a good time for tenants to renew leases or look for new space. Office rates are still historically very low and brand new, Class A space still abounds from the construction boom.

However, Jones Lang LaSalle reported the days of major landlord concessions, such as free parking, are waning.

Most of metro Atlanta is seeing tenants play musical chairs -- and some are downsizing -- as they move from one area to another. Ad agency J. Walter Thompson and law firm Thompson Hine decided to relocate from Central Perimeter and Midtown, respectively, into Buckhead. And when SunTrust left 250 Piedmont Avenue for Peachtree Center, it downsized by about 100,000 square feet. J. Walter Thompson also downsized as it moved to new space.

One major trend that continues is the lack of new construction: not a single submarket saw a new building get started in the last quarter. That’s in part because of the grand scale of new construction during the boom years, which has left millions of square feet of empty space. Midtown alone still has 4 million square feet of vacant space to fill.