Construction costs skyrocket, niches remain – such as Houston’s site near Lenox Mall

By David Pendered

The site of a former Houston’s restaurant, across Lenox Road from the mall, is just the type of property that could accommodate a trophy asset the current and near-future economy could support. This comes at a time a new report from CBRE suggests some potential commercial developments may not make much economic sense because of skyrocketing construction costs in metro Atlanta.

Former Houston's site

The site of a former Houston’s restaurant, near Lenox Square, is located amid the vibrant Lenox/Buckhead commercial real estate district, according to a marketing brochure by Colliers International. Credit: colliers.com

This isn’t to single out the old restaurant site as a special opportunity. The notion is simply to illustrate a point made by CBRE’s latest report on the region, Construction Costs Impacting Atlanta’s Commercial Real Estate Market.

The report contends that the confluence of rising costs for labor, materials and regulatory compliance have caused the cost of commercial construction to spike since 2004 to historic highs:

  • “At no other point in Atlanta’s history has the cost of construction accelerated this aggressively.”

Consider labor costs in the construction industry. They’ve risen by 24 percent since 2000, from $15.02 an hour to $24.21 an hour in 2018, according to the report, citing figures from the U.S. Bureau of Labor Statistics.

Even in this economic climate, CBRE, a global real estate company with an Atlanta presence, contends that high-end developments in ideal locations still offer potential rewards – provided that developers mitigate risks associated with the potential of delivering a building during a recession:

  • “In this scenario, developers are focusing on designing and building the very best asset in the market so that it will benefit from a ‘flight to quality’ decision amongst occupiers. Hence the need for a longer debt term and lease-up timing to attract select tenants who will pay the higher rent, even in a recessionary period.”
amli, lenox, sims park

Construction continues at AMLI Oak Valley, an enclave rising around the Marie Sims Park that’s located on the west side of Lenox Road, across from the Lenox Square commercial district. Credit: David Pendered

Enter the example of the former Houston’s site.

The 0.9-acre site is zoned C-3, Fulton County property records show. This Atlanta zoning category allows commercial properties of up to 225 feet, according to the relevant city code.

Additional density could be added to a future building on property through a transfer of development rights. TDRs take density that hasn’t been used on another degelopment in Atlanta and shift it to a receiving property in a transfer that cannot be blocked by neighbors of the receiving parcel. The owner of the receiving property typically purchases the density from a seller.

Colliers International is marketing the parcel as having, “superb location, site size and zoning; a multifamily tower, hotel, condos or retail could be built on the site.” The marketing brochure does not indicate a price for the parcel, which is located catty-corner from MARTA’s Lenox Station.

Nor does the brochure mention that AMLI intends to finish this year its third apartment project at Marie Sims Park, which is located a few blocks northwest of the old Houston’s site. Almost 400 new units are to come on the market.

Colliers does observe the neighborhood offers a host of amenities including Lenox Square, Publix Grocery, Target, and proximity to, “1 million square feet of Class A office space.” Giving a nod to outgoing Gov. Nathan Deal’s successes in economic development, the brochure notes the site is located in a Lenox/Buckhead submarket of, “the No. 1 city in the country for corporate relocation.”

 

Mill Creek Modera, Buckhead

Mill Creek Residential is building a mixed use structure that’s to provide 319 apartments and 21,000 square feet of retail at the intersection of Piedmont and Lenox roads. Credit: David Pendered

 

cranes over peachtree, buckhead, whole foods

These cranes along Peachtree Road, visible from the Whole Foods Market parking lot in Buckhead, continue construction despite rising costs as recorded in a report from CBRE. Credit: David Pendered

 

houstons, lenox

The 0.9-acre site of a shuttered Houston’s restaurant near Lenox Square has a zoning classification that allows construction of a building as tall as 225 feet, among other potential commercial uses, property and zoning records show. Credit: David Pendered

 

 

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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