DENVER —- Many cities around the world are building too much office space, but it would seem Atlanta isn’t one of them.
Kevin Thorpe, the chief economist for real estate services giant Cushman & Wakefield, told a meeting of national real estate journalists on Thursday that some 700 million square feet of office space — roughly seven Denvers’ worth of office towers – are being built globally at a time when job growth and office space demand is beginning to slow.
Thorpe said much of the risk lies overseas, but the U.S. markets most at risk of overbuilding are: New York; Austin; San Francisco; Nashville; Seattle; Washington, D.C.; Denver; the Raleigh-Durham area and San Jose.
Too much office supply is likely to cause pain in the global office market, but some of that pain will be mitigated by companies that will still seek to locate their workers in newer buildings with the latest features, Thorpe said at the National Association of Real Estate Editors conference in Denver.
What pain might develop won’t be like anything the world experienced in the Great Recession, he said, as banks are stronger and central banks are poised to react if the economy starts to get feeble.
“I don’t see any obvious threats of recession,” he said.
His message to investors: “Don’t play scared. The odds are good the expansion will continue and the odds are good the next recession won’t be so nasty,” he said.
Atlanta was a poster-child for overdevelopment of speculative or build-it-and-they’ll-come office buildings in the run up to the Great Recession. Buckhead had several large office towers open as the economy went into deep freeze, forcing landlords to cut rents to fill them up.
That put pressure on owners — some of whom lost buildings to foreclosure — while tenants got the benefit of cheaper rents.
The metro area has more disciplined in this cycle as most offices under construction have been built for owners or tenants in hand. Job growth in the metro Atlanta area also has been strong.
Meanwhile, metro Atlanta ranked No. 4 behind Houston, Dallas and Phoenix in net migration from 2014 to 2016, and Thorpe said the Atlanta area should climb to No. 3 behind Miami and Dallas for net new residents through 2019.
Generally, the U.S. isn’t over building. Beijing, Thorpe said, is currently building more office space than all gateway U.S. cities combined.
The metro Atlanta office vacancy rate stood at 16 percent in the first quarter of this year, according to Cushman & Wakefield, up from 15.8 percent at the end of 2016, but below the 16.2 percent rate in the first quarter of 2016.
About half a million square feet of speculative office space was completed in 2016, while the Three Alliance Center tower in Buckhead opened this year. Coda, at Technology Square, is the largest speculative project underway.
About 4 million square feet of speculative space — the equivalent of about three of Atlanta’s Bank of America Plaza towers — was under way in metro Atlanta at the end of 2016, according to Cushman & Wakefield.
The relatively tightness of Atlanta’s office market has led to record asking rents across the metro area.
Labor shortages, productivity gains and companies using fewer square feet per worker are some of the reasons behind the softness in expected office space demand.
Thorpe said the economic recovery still has room to run and markets have responded favorably to the incoming Trump Administration.
“When you boil it all down Trump is looking to cut taxes, increase spending in certain areas, [enact] some regulatory reform and challenge some trade agreements,” Thorpe said.
Though the president hasn’t made much progress in enacting that agenda so far, Thorpe said he expects the Trump Administration to get some of policy in place and that could help stimulate growth in the near term.
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