Atlanta Office Market Summary
The challenges facing Atlanta's office market deepened in 2023. The long-planned consolidation of office footprints from major employers such as AT&T and Invesco in 23Q2 led to the steepest negative absorption since early 2021. That reversed the reprieve seen in 2022, when a wave of tech-company move-ins stabilized vacancy rates. Still, the market's long-term appeal remains intact, and a handful of high-profile leases signed in the second half of 2023 raised optimism among market participants. Bright spots of positive absorption exist around pockets of 18-hour activity, such as The Battery and the Eastside Beltline.
Long-term demand for office space in Atlanta has benefitted from regional affordability, population growth, and a diverse workforce that can help corporations meet environmental, social, and governance (ESG) or diversity, equity, and inclusion (DEI) mandates. However, the market is not immune from macroeconomic trends and a drastically tighter financing environment. Examples include Microsoft pausing plans for a 90-acre Westside campus, a proposed life sciences campus downtown going into foreclosure, and the collapse of the crowdfunding sale of an iconic Buckhead tower. Upcoming loan maturities could reveal additional distress, especially in high-vacancy properties. Downtown's Peachtree Center along with Tower Place 100 in Buckhead, and a handful of suburban campus buildings have already gone to special servicing.
Three key headwinds are on the horizon: supply, shrinking lease sizes, and sublease space. Developers have delivered over 14 million SF since 2020, though the current pipeline has slowed considerably, and the 3.2 million SF underway is the lowest since 2015. A break in new construction will be welcome news for property owners, as the lease-up of new space has come at the expense of older buildings. That has left large blocks of older space to backfill at the same time as office users are requiring less space. The average lease size in Atlanta was down more than 30% in 2023 compared to 2019.
About 8.6 million SF of sublet space remains available, a record for the area. While subtenants are starting to backfill several vacated spaces, other large blocks continued to enter the sublet market. NCR put one of its two 2018-built headquarters towers in Midtown on the market in June, and TKE, PagerDuty, and Flexport put additional space on the market in 23Q3.
Atlanta remains a target market for large-scale capital allocators. While Atlanta is the eighth largest office market by square feet in the United States, the metro ranks sixth for total office sales volume over the past year. Investment activity slowed significantly in 2023, but a handful of recent transactions indicate that sellers have begun to capitulate on pricing. Armada Hoffler's May 2023 purchase of the 2021-built Interlock in West Midtown for $215 million was significantly lower than market expectations, and Blackstone sold 3 Ravinia in August 2023 for more than 16% less than the property's 2016 price.
