Atlanta a poor choice for real estate investment, report says

All the construction activity in Buckhead is “goofy.”

That description comes not from a disgruntled neighbor but the Urban Land Institute, a national organization of developers, many of whom are in Atlanta.

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Renee' Hannans Henry/AJC

Buckhead absorbs less than 500,000 square feet of office space annually, but more than 2 million square feet is under construction, the report said.

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ULI presented its annual Emerging Trends in Real Estate Report on Tuesday and once again Atlanta is portrayed as overbuilt and not a particularly attractive place to invest.

In a ranking of 50 metropolitan areas, Atlanta came in at 33 for commercial and multifamily development, 24 for commercial and multifamily investing, and 33 for home building. The last time Atlanta ranked at the top was 1995.

Next year “promises tough times [in Atlanta] as an overbuilding hangover and slipping demand roil investors,” states the report, now in its 30th year. “It’s no time to buy in any of the property sectors. Office developers play a game of chicken in Buckhead, where a bloodbath is coming.”

Buckhead absorbs less than 500,000 square feet of office space annually, but more than 2 million square feet is under construction, the report points out.

“The goofy activity defies description.”

The principal author of the report, Jonathan Miller, who lives in New York, addressed ULI Atlanta members Tuesday morning at the Cobb Energy Performing Arts Center.

As for the perception that Atlanta is overbuilt, “given what’s going on in Buckhead right now, I think it sticks,” said Miller, who has spent time walking and driving around the city.

A chunk of Buckhead along Peachtree Street is dirt because of the Streets of Buckhead, a $1.5 billion mixed-use development that will have luxury retail.

A project like that might be facing trouble if current conditions persist, the report indicates. “Inflation and energy costs eat into retail sales” next year, Emerging Trends predicts, “while the unsettling jobs picture and housing woes unnerve most shoppers. After a decades-long boom, the retail bone yard fills up again.”

As a sort of counterbalance to the pessimistic report, panelists discussed why Atlanta is a great place for real estate.

Two of the panelists work for companies adding to the Buckhead office glut: Tad Leithead, senior vice president with Cousins Properties, and Lyle Fogarty, vice president of development with Crescent Resources.

Cousins Properties is building Terminus 200 and Crescent Resources is putting up Phipps Tower.

Leithead, the moderator, said in order to solve growth problems such as clogged roads there needs to be greater involvement at the highest levels of state government. With local governments and elected leaders following different drummers, regional solutions are much more difficult, the development community says.

That prompted Sen. Judson Hill (R-Marietta) to approach the panel. “We have a crisis,” Hill told the panel and audience. “We haven’t had a plan at the state level in decades.”

The consultant McKinsey and Co. is expected to soon unveil the results of its $2 million transportation funding study. Plunging state revenues and transportation funding are the two biggest issues facing the next General Assembly, Hill said.

Despite the generally negative view of Atlanta, the 2009 Emerging Trends Report is fairer than last year’s, which didn’t mention the surge in intown development, said Jeff DuFresne, executive director of ULI Atlanta.

Annoyance with traffic and the desire for convenience over space are spurring migrations to the city’s core and spawning 24-hour neighborhoods.

The latest report “does capture the subtleties of what’s driving our future,” DuFresne said.