Rate hikes in three Atlanta office markets among top five in nation, world

By David Pendered

Buckhead has often led the region out of recession through the construction of office building – with the labor and materials it consumes. This time, Buckhead is sharing the spotlight with Midtown and suburban markets in price hikes for office space due in part to the lack of office construction, according to a new report from CBRE.

Buckhead office building

Demand for office space in Buckhead has driven rates up by 7.5 percent in calendar year 2016, according to a new report from CBRE. Credit: David Pendered

The three markets in metro Atlanta combine to claim two of the top five spots in CBRE’s ranking of markets. The metric is annual percentage growth in leasing rates, according to CBRE’s report – Global Prime Office Rents, 2017.

Suburban Atlanta markets claimed the region’s mantle by increasing at a rate of 8.4 percent. Rates in Buckhead and Midtown rose at 7.5 percent, according to CBRE’s report.

The time frame compares rates in the fourth quarter of 2016 with rates in the fourth quarter of 2015.

Rates for prime office space provide a barometer into market conditions that drive the rates. This is what makes them so fascinating, according to CBRE:

  • “An overall market’s average rents may in some cases be only 40 percent to 50 percent of prime rents, but their rates of growth are correlated in the long run. Prime rents are typically highest in the world’s great financial centers, but other factors are also in play. An upturn in development can depress rents for some time, whereas a change in the business environment—such as a surge in the technology sector—can send prime rents rapidly higher. Prime rents can give important clues about broader market movements, which is what makes them so interesting.”
Rising demand for office space in centers of finance and technology fueled a spike in rental rates in 2016. Metro Atlanta's markets nearly made this Top 10 list. Credit: CBRE

Rising demand for office space in centers of finance and technology fueled a spike in rental rates in 2016. Metro Atlanta’s markets nearly made this Top 10 list. Credit: CBRE

CBRE’s findings comport with those in the most recent report of economic conditions in the broader Southeast issued March 1 by the Federal Reserve Bank in Atlanta. This edition of the Beige Book observed:

  • “Most commercial real estate contacts noted improvements in demand, resulting in rent growth and increased absorption, but continued to caution that the rate of improvement varied by metropolitan area, submarket, and property type. Many commercial contractors indicated that the pace of nonresidential construction activity had increased from a year ago, with many reporting backlogs greater than one year.”

The CBRE report on office rents showed nation’s three highest growth markets were:

  1. Downtown Chicago led the nation with a 19.9 percent growth rate;
  2. Suburban Seattle came in second, at 11.6 percent;
  3. Downtown Seattle ranked third, at 11.4 percent.

In metro Atlanta, the current construction cycle has been dominated by multifamily projects.

cbre, global prime office rents, chart

Rate hikes for office space in Midtown, Buckhead and suburban Atlanta placed the markets among the top five in the nation and compare well with the Asia Pacific markets. Credit: CBRE

The region has notched a 29 percent increase in building permits issued for multifamily projects for the month of January, compared to January 2016, according Census data tracked by the National Association of Home Builders.

In January, 1,414 permits were issued for multifamily projects. In January 2016, 1,092 such permits were issued, the data shows.

The Federal Reserve’s latest Beige Book observed the construction industry overall expects to continue to see improving conditions:

  • “Reports on the pace of multifamily construction continued to be mixed, with roughly half indicating that the pace had increased from the year-earlier level and the rest suggesting that the pace had leveled off or slowed. Looking forward, the majority of District commercial real estate contacts expect the pace of nonresidential and multifamily construction activity to increase slightly over the next quarter.”

 

David Pendered, Managing Editor, is an Atlanta journalist with more than 30 years experience reporting on the region’s urban affairs, from Atlanta City Hall to the state Capitol. Since 2008, he has written for print and digital publications, and advised on media and governmental affairs. Previously, he spent more than 26 years with The Atlanta Journal-Constitution and won awards for his coverage of schools and urban development. David graduated from North Carolina State University and was a Western Knight Center Fellow. David was born in Pennsylvania, grew up in North Carolina and is married to a fifth-generation Atlantan.

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