Office vacancies good for tenants

With office vacancy rates expected to hit 20 percent this year in metro Atlanta, landlords face increased poaching of tenants by competitors offering more attractive deals.

For tenants, it’s an opportunity to improve the quality of their space, Julian Diaz, chair of the real estate department at Georgia State University, said Monday. But if you’re a landlord, “you’re trying to hang on until things turn around,” Diaz said. He added that the consensus is that could happen as late as 2011.

For many landlords, hanging on may mean renegotiating deals and lowering rents, while getting concessions such as longer leases.

A report last week from Atlanta-based Colliers Spectrum Cauble that metro Atlanta’s overall office vacancy rate of 17 percent in the first quarter of 2009 grew only 1.1 percent from the same period in 2008 surprised some experts.

“We haven’t had any large corporations move out of the area or go out of business, and that certainly helped,” said economist Roger Tutterow of Mercer University’s Stetson School. “But smaller companies that are moving on and closing their doors will tend to push it up.”

New projects are usually launched when the economy is good —- which is what happened in Atlanta, especially in Buckhead and Midtown. But new space that went up during the good years came online as the economy started to contract, contributing to an already overbuilt market.

The recession also has added significant chunks of sublease space in the Atlanta market, a recent report by Jones Lang LaSalle said. It cited Midtown, where, for example, law firm Powell Goldstein has merged with Bryan Cave and is marketing four floors.

Owners bringing new buildings online in Buckhead or Midtown can be more aggressive in offering incentives such as introductory free rent to pull tenants away from other buildings, said Todd Yates, senior vice president of national development at the Alter Group in Atlanta.

“If you have new buildings with construction loans and the ability to offer incentives such as free rent, that allows owners to hold the face rate” of the building, he said, which will help them as they try to sell the building or refinance it when the economy improves.

Landlords of more stable buildings may use rent waivers or reductions to keep tenants. “But if you’ve got a building with decent vacancies and positive cash flow, you don’t need to be as aggressive,” said Yates, a 27-year veteran of the business.

“This is as strange as I’ve ever seen it. We’ve never had all these factors with the capital market and lack of access to liquidity, coupled with a down economy,” he said.

 Michael Dabrowa AJC
Vacancy rates around town
Metro Atlanta's empty office space is growing, with the overall vacancy rate expected to hit 20 percent this year. The hardest-hit areas are northeast of the city, including Gwinnett County, and the northwest metro area including Cobb and Cherokee counties. The Northlake area has the lowest rate.

Office zone............Vacancies
1. Northwest Atlanta....18.3 percent
2. North Fulton ........17.6 percent
3. Northeast Atlanta....20.4 percent
4. Central Perimeter....18.1 percent
5. Northlake............10.5 percent
6. Buckhead ............15.4 percent
7. Midtown..............15.9 percent
8. Downtown ............16.9 percent
9. West Atlanta ........19.5 percent
10. South Atlanta ......18.2 percent
Total Atlanta market....17 percent