Atlanta Office Market Leasing
The Atlanta office market faces significant leasing and absorption challenges heading into the final quarter of 2023. Atlanta has seen -3.7 million SF of negative absorption over the past 12 months, compounding absorption losses earlier in the pandemic and reversing positive trends in 2022. Vacancy rates remain elevated at 15.3%, the highest rates seen since the aftermath of the Global Financial Crisis of the late 2000s.
The newest buildings in the market's most vibrant locations continue to attract an outsized share of new absorption. Since the onset of the coronavirus pandemic in 20Q2, more than 8.2 million SF has been absorbed in buildings built since 2015, outweighed by negative absorption of more than 9.3 million SF in buildings before 2014.
Atlanta entered 23Q2 with more than 61 million SF of available space, an increase of 20% over the past three years. Much of that space is in a stubborn sublet market, a concern for the market that could serve as a headwind for the metro's office recovery for years. Atlanta has roughly 9.1 million SF of sublet space available, representing about 2.7% of the metro's total inventory. That's up from 3.2 million SF in early 2020 and more than the market has ever seen. Even during the global financial crisis, sublet availabilities peaked at 5.6 million SF in 2009. While sublet space declined from a peak of 9.2 million in 23Q2, recent decisions from companies such as NCR, TKE, and Flexport have kept the sublet total elevated.
One major problem for these big numbers is a small one. The average lease size continues to shrink. Whereas the typical lease in Atlanta was more than 5,000 SF between 2016 and 2019, the average lease size fell below 4,000 SF in the first nine months of 2023. A slowdown in corporate relocations and expansions and space consolidations by major employers have driven the lower size requirements. However, some office users countered these trends in 23Q3. AT&T, which has consolidated its office footprint in Atlanta, shedding more than 2 million SF, leased 130,000 SF at 1277 Lenox Park in Buckhead and Morgan Stanley doubled its office footprint in Alpharetta with a 116,000-SF leased at The Edison. Additional large leases were signed by Sage Software (57,000 SF at 619 Ponce), First Key Homes (51,000 SF at 600 Galleria Parkway), and Portal Innovations (32,467 SF at Science Square).
The Midtown and Northside Drive/Georgia Tech (also known as West Midtown) submarkets have seen move-ins from major corporations Google, Microsoft, Visa, Invesco, and Nike, as well as in-market moves from professional service, consulting, and law firms seeking the market's new center of gravity north of Downtown. But well-connected suburban submarkets with walkable dining and entertainment amenities also attract attention, particularly in the northern quadrant of the metro. Some of the largest leases of the past several months were signed in the Cumberland/Galleria and Central Perimeter submarkets. Truist's recent announcement that it would consolidate its offices at the Major League Baseball stadium-anchored Battery development in Cumberland/Galleria and Transportation Insight's headquarters relocation to the mixed-use Campus 244 in Central Perimeter bolster long-term prospects for both submarkets. Meanwhile, Buckhead, once the king of Atlanta's office landscape, has become an attractive value play to Midtown, as older properties in that submarket can come at $10/SF to $15/SF discount to Midtown.
