There’s roughly 20 million square feet of commercial space downtown, but more than a fifth of that space was vacant at the end of last year, according to real estate services giant Cushman & Wakefield.
Though downtown Atlanta’s vacancy rate is similar to those of Midtown, Buckhead and other Atlanta area submarkets, downtown’s office high-rises are generally older. Though downtown’s rents are generally cheaper, fewer downtown buildings can match the mix of perks of new developments like Midtown Union or The Interlock on the city’s westside.
CAP and ADID said the number of daytime visitors to Atlanta lags pre-pandemic figures.
“Perhaps our biggest challenge is responding to the national trend of working remotely,” CAP President A.J. Robinson said last month during his organization’s annual lunch. “We’ve seen the pendulum kind of swing back a bit, but frankly our daytime population is still not what it used to be.”
Atlanta is not alone, with other longtime office districts across the country feeling economic strain. A recent report by Bloomberg said Manhattan in New York City is taking a $12 billion annual economic hit from remote work, as workers spend less time and money in the city. Peak in-office times in Manhattan have narrowed from Monday-Friday to Tuesday-Thursday.
More than 330 million square feet of offices are expected to be vacant and obsolete by the end of the decade, according to a Cushman & Wakefield analysis. Roughly 70% of the country’s office supply was built prior to 1990.
“The net result of these shifting demand dynamics and static supply dynamics is an accelerated divide between the office that works for today’s economy and the office that doesn’t work,” Kevin Thorpe, chief economist and head of global research for Cushman & Wakefield, said in the report.
Emptier office buildings are not as valuable as fuller ones. Landlords watching tenants slip away will face greater pressure to pay off their mortgages and some buildings might go into foreclosure. Some experts fear declining values of office buildings could lead to significant hits to cities, counties and school systems that rely on commercial property taxes.
Some of downtown’s most iconic buildings have made headlines for their financial struggles. Several office towers within Peachtree Center and the 10-acre site slated for the Forge Atlanta mixed-use development underwent recent foreclosure sales. The Sheraton Atlanta Hotel faces foreclosure, according to its lender.
Conversely, demand for new housing has continued to rise as metro Atlanta’s population grows with rents and home prices increasing to match. Cushman & Wakefield found that effective apartment rental rates in metro Atlanta has risen more than 35% in the past five years, and only about 7% of apartments are vacant.
“The market is speaking,” Robinson said in a Wednesday interview. “Everybody’s talking about housing affordability and the lack of housing... because of the lack of demand of office and the high demand of housing, this may be a good time to act.”
CAP and ADID said converting existing buildings into apartments could kill two birds with one stone.
Repurposing older buildings as housing could help “bring back vibrancy and activity to its streets and storefronts,” the request for proposals said.
Some old Atlanta offices are already slated for conversion. The city recently purchased the 2 Peachtree Street building, a 41-story office tower that city officials plan to convert into hundreds of housing units. The historic W.D. Grant Building, on Broad Street downtown, was recently acquired by Wolfe Investments and Bluelofts Inc., and the Texas-based companies plan to convert the 124-year-old structure into apartments.
Evolution in real estate isn’t new. Jamestown Properties converted the hulking former Sears warehouse into the popular Ponce City Market, a hub of apartments, offices, shops and restaurants that is arguably the city’s most famous commercial re-do.
But turning offices into residences isn’t easy. It’s expensive to add bathrooms and kitchens to wide floor plates intended for corner offices and cubicles.
A report last year from real estate services firm CBRE said office-to-residential conversions are likely to remain somewhat rare and will only remove so much outdated inventory.
Credit: Natrice Miller / Natrice.Miller@ajc.com
Credit: Natrice Miller / Natrice.Miller@ajc.com
The two downtown groups, CAP and ADID, want a consultant to address physical, regulatory and financial variables that could affect downtown building conversions and then develop a plan that targets specific buildings that make sense to change into housing.
Robinson, who heads CAP, said Wednesday that downtown’s future remains bright and other areas of the city could follow suit.
“What we could learn about downtown would appeal and be able to apply to older buildings anywhere in Atlanta,” he said.
Help wanted: Office-to-residential consultant
Central Atlanta Progress and the Atlanta Downtown Improvement District are seeking a consultant for guidance on how to convert old office towers into housing. Submissions must be sent to CAP’s Director of Economic Development Alena Green at email@example.com, by 5 p.m. April 13. The organizations aim to have a selected partner and plan by the second week of May.