Office landlords are having to count their blessings, especially when tenants are considering whether to leave or renew their leases.
Competition is cutthroat. At the end of last year, nearly a third of all office space in metro Atlanta was either vacant or being shopped around as “sublease” space by tenants with more room than they need.
Steve Berman, founder of real estate firm OA Development, said his firm recently signed a nearly 102,000 square-foot renewal in an office building the company owns in Gwinnett County, one of metro Atlanta’s largest office lease signings so far this year. Engineering consulting firm Pond Co., the largest tenant at the Peachtree Ridge office building, chose to remain in its existing headquarters without downsizing.
But Berman said persistent uncertainty in the office market has made every lease negotiation unpredictable.
“We were pleased, but a little bloody,” Berman said of Pond’s renewal, which took place last month. “Who isn’t going to get bloodied up when you make a renewal in this marketplace?”
Historically high vacancies and increased interest rates have many real estate experts concerned about mounting foreclosures in the office sector. Metro Atlanta set records last year for its unwanted office space, ending 2023 with about 32% of its office square foot available for rent, according to real estate services firm CBRE.
Cities, counties and schools rely heavily on commercial tax revenue to fund services. Fuller buildings are worth more than emptier ones, meaning local governments have a lot riding on how healthy the office market is.
Persistent hybrid work schedules, an abundance of vacant space and a tough refinancing market have clouded the office market since the onset of COVID-19, forcing employers and landlords to adjust to a post-pandemic work environment. For many, that has meant sitting tight and taking time to evaluate, which has lead to years of depressed leasing activity.
Less than 5.7 million square feet of leasing activity took place in metro Atlanta during 2023, about 3.8 million square feet less than the pre-pandemic year of 2019, according to data from real estate services firm Cushman & Wakefield.
Push comes to shove when a lease is about to expire, and many employers have decided to reduce their office footprint while reconfiguring their remote work policies. The average amount of office square footage leased across the country has shrunk 25% since the beginning of the pandemic in 2020, according to Addison Meriwether, an Atlanta-based executive managing director at Cushman & Wakefield.
Even the largest lease transaction of 2024 so far in the Atlanta area was a downsize. Logistics software maker Manhattan Associates renewed 209,000 square feet of space at Wildwood Center in Cobb County, according to CBRE, but that was a 5% decrease from the company’s prior footprint.
Meriwether said office owners are doing whatever possible to prevent their tenants from shedding space — from investing money to refresh their buildings to offering concession packages.
“To keep the status quo is certainly a win for the landlord,” he said.
Berman declined to disclose the lease terms of the renewal with Pond, which has operated in Peachtree Ridge since 2005 and now occupies about two-thirds of the building. OA Development was represented by Transwestern, while CBRE’s Craig Goldberg and Pablo Melgarejo represented Pond.
OA Development recently completed lobby and landscaping enhancements at the 37-year-old office building at 3500 Parkway Lane.
Credit: OA Development
Credit: OA Development
“This is an industry that if you’re not constantly investing in the asset, you can’t keep up,” Berman said.
Bob Williams, Pond’s CEO, said most of the 300-plus employees based in Peachtree Ridge come to the office about four days a week. His company also added a 20,000 square foot satellite office in Cobb because of the company’s recent growth.
“It’s a great opportunity to find your balance,” Williams said. “Don’t go completely work-from-home because you’ll miss that camaraderie, but it’s OK to not have that commute every once in a while.”
Several Atlanta employers have ramped up return-to-office mandates in recent months. Fortune 500 shipping giant UPS became one of the country’s largest companies to require employees to come back five days a week, and digital commerce firm NCR Voyix announced a similar policy last week for its Atlanta workforce.
Cushman & Wakefield recently studied 160 companies, and about 85% of them have policies requiring at least three days of in-person work. Meriwether said, “There’s a concerted effort to get people back in the office.”
Berman said loan distress is a looming threat even for landlords who are retaining tenants. His firm made headlines a year ago after a fully leased building of his in Alpharetta nearly went through foreclosure.
“You can do all the right things and still end up on the wrong side of the bed,” Berman said. “This is a humbling market to work in.”
