Atlanta’s tony Buckhead, often maligned for the past few years as the poster child for over-development, is showing signs of a comeback.
The gleaming — and formerly empty — new office towers that gaze over Atlanta’s financial district like see-through sentinels are starting to fill up. And though office vacancy rates remain near historic highs, there’s a glimmer of hope in commercial real estate circles that recovery has taken hold.
There’s even some speculation of the near-unthinkable — that development of major new projects isn’t all that far off.
It wasn’t long ago that Buckhead boosters bought full-page color ads in the Wall Street Journal to entice condo buyers and employers to move into the glitzy community to take advantage of the area’s overbuilding pain.
Six Class-A office towers launched during the boom and built within walking distance of Phipps Plaza came online as the economy first sputtered then spiraled out of control. The projects added 3 million square feet of office space, and much of it was not leased when it came to market.
Through the first three quarters of 2011, Buckhead reported the most net absorption of available space of Atlanta’s major office submarkets, according to a report by the CoStar Group.
Buckhead office vacancy was 18.7 percent in third quarter, down from a high of 23 percent in first quarter of 2010. The vacancy rate for Class A office, the most prestigious sites, was 20.5 percent in the third quarter. Four of those new towers are 89 percent leased or better, according to CoStar data.
Metro Atlanta vacancy is lower at 16.9 percent overall, and 18.3 percent for Class A.
“We see the sunlight at the end of this tunnel, and Buckhead is taking advantage of it,” said Sam Massell, a former mayor of Atlanta and president of the Buckhead Coalition, an influential business group that bought the national advertising in 2009.
It hasn’t been easy. The glut of available space was filled with the help of generous concessions in rent, parking and facilities improvements. Those concessions, however, are starting to diminish, real estate sources say.
In many cases, Buckhead’s gain has come at the expense of other local submarkets as companies located elsewhere in Atlanta took advantage of bargain rents for Atlanta’s flashiest addresses.
“Capitalism is winning. Landlords lowered their rents and tenants took advantage of the sale in real estate,” said Ken Ashley, senior director of tenant services with Cushman & Wakefield in Atlanta.
A stable office market feeds other industries, boosting nearby retail and restaurants from the office workers that fill the vacuum of unused floors. When the values of commercial properties rise, so do their contributions to the tax rolls.
Atlanta’s office market is still troubled. Major buildings have gone back to their lenders, and real estate investors have snapped up trophy properties at steep discounts.
Experts say Atlanta needs the economy to grow to fully repair the office market.
“Buckhead has surprised everybody and turned out better than we thought,” said Bill Weghorst, executive vice president southeast region for PM Realty Group.
Underscoring that was the sale in late 2010 of the office and retail portion of the 50-story 3344 Peachtree skyscraper — Buckhead’s tallest building — for $346 per square foot, a record-setting price for Buckhead. That building, opened in 2008, was 98.5 percent leased in third quarter.
The streetscape project on Peachtree Road and planned new pedestrian connections and aesthetic improvements to the Buckhead MARTA station are major pluses for prospective office tenants, Weghorst said.
At a conference last week on Buckhead’s future, held by real estate publication BisNow, Massell had 400 business leaders buzzing when he highlighted Buckhead’s progress, and said a major developer is laying the groundwork for a new office tower.
New York-based Tishman Speyer, developer of the Alliance Center complex at Lenox Road and Ga. 400, is preparing for a third skyscraper there, Massell said. The company has declined to comment.
Tishman Speyer, said to be pitching a possible 500,000-square-foot office tower, is reminding brokers the firm has an available site for such a tower if they have a major tenant that wants a building, sources within the commercial real estate community said.
Office skyscrapers take time to move from concept to finished construction. After design is finished and financing is obtained, it generally takes 18 months to 24 months to complete a major urban office tower, Cushman & Wakefield’s Ashley said.
Given the extended timeline of actually developing a building, Ashley said, “it’s not surprising developers would be talking about what’s next because what’s next is 24 months in the future.”
For new construction to happen now, a building would have an anchor tenant on board to take up 65 percent or more of the building, experts speculated. With as much empty office space as there is across the metro area, and because existing buildings can be bought for less money than the cost to build new buildings, lenders would be cautious in backing such a venture.
Clark Gore, Atlanta regional managing principal for real estate firm Cassidy Turley, said given the current pace of absorption, the start of the next Buckhead office tower could be three years away, with an opening in 2015 or 2016.
“At some point, Buckhead is going to be ready for another building,” he said.
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Office vacancies by the numbers
18.7%
Buckhead office vacancy rate in third quarter
23.%
Buckhead office vacancy rate in first quarter of 2010
20.5%
The vacancy rate for Class A office space in third quarter.
16.9%
Overall vacancy rate in metro Atlanta
Source: CoStar data.
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