Construction costs skyrocket, niches remain – such as Houston’s site near Lenox MallConstruction 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
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.
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.”
Enter the example of the former Houston’s site.
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.”