Rates rising for metro Atlanta’s offices, warehouses as vacancy rates decline: CBRE

By David Pendered

Metro Atlanta’s office and warehouse markets ended 2015 in their best shape in more than a decade, according to new reports released Thursday by CBRE, a global real estate firm.

BB&T at Atlantic Station

Metro Atlanta’s recovering office market is fueling Hines’ plans to develop a 210,000-square-foot office building near these office towers at Atlantic Station. File/Credit: David Pendered

So much space has been leased in both markets that landlords and owners are finally able able to raise rates, the reports showed. This marks an ongoing recovery from the struggles during the years that followed the Great Recession.

This report is significant because it suggests the region is approaching the point where the construction of new office buildings and even more industrial buildings may be viable. An old adage in metro Atlanta is that the region historically builds it way out of economic downturns.

That’s because real estate development is affects more than the actual construction jobs. It touches architectural and engineering services; legal services; marketing and management services; grading, paving and landscaping services; site engineering services; and interior design and construction services, according to a June 2015 report by NAIOP, a commercial real estate development association.

In the office sector, CBRE reports that overall asking rental rates increased by 16 cents over the prior year to an all time high of $21.89 per square foot. Here’s how the categories performed:

  • Class A – Rose 19 cents a square foot to a new record of $24.33;
  • Class B – Rose 11 cents a square foot to $18.26;
  • Class C – Rose 20 cents a square foot to $15.68.

“The Atlanta market will likely continue to see similar increasing rate trends through the beginning of 2016 as Class A vacancy continues to tighten and no new office product is projected to deliver in the short-term,” the report stated.

Office statistics Q4

The office market in metro Atlanta ended 2015 with its 13th consecutive quarter of declining vacancy, according to CBRE. Credit: CBRE

The Cumberland/Galleria submarket experienced the greatest amounts of space leased in the fourth quarter of 2015; 247,293 square feet. The North Fulton submarket ranked second, at 118,158 square feet leased.

Both of these markets are home to new developments.

Mercedes-Benz USA is slated to begin construction later this year on a 250,000-square-foot headquarters near the Sandy Springs MARTA Station.

Comcast is to build a 250,000-square-foot officer tower at SunTrust Park, near the future Braves ballpark near Cumberland Mall.

In the industrial sector, overall asking rental rates rose by 38 cents a square foot over the prior year to $3.97 a square foot. Here’s how the categories performed:

  • Flex product rose by 15.6 percent to $8.08 a square foot;
  • Shallow bay rose by 10.5 percent to $3.78 a square foot.

Incidentally, flex space can be used as a traditional warehouse or, more recently, as a lower-cost alternative office space favored by dot.coms and light manufacturing. Shallow bay can be used as traditional warehouse space or light manufacturing.

“With the positive net absorption seen in 2015, rates are expected to continue to increase over the short-term. However, current and future speculative construction may help to mitigate increases in rent from lower market availability,” the report stated.

These CBRE reports are in line with the Dec. 2 Beige Book, issued by the Atlanta district of the Federal Reserve. However, the Beige Book was more muted about prospects for the future:

  • “District commercial real estate brokers indicated improvements in demand that resulted in increased absorption and rent growth across property types, but they cautioned that the rate of improvement varied by metropolitan area, submarket, and property type.”
Industrial statistics Q4

Demand for industrial space continued to outpace supply in 2015, despite delivery of 10.8 million square feet, according to CBRE. Credit: CBRE

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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