Atlanta Office Summary
Challenges, including weak office attendance, faltering office-using employment, reduced lease sizes, blocks of available sublet, and older buildings, have presented ongoing challenges to the Atlanta office market. Quarterly leasing activity in Atlanta has dropped from an average of 4.3 million SF in 2015-19 to 3.2 million SF from 2020 onwards, roughly a 25% drop. Cumulative net absorption since the second quarter of 2020 is -8 million SF, lifting the vacancy rate to at 16.5%, on par with the area's peak of over 16% in the wake of the global financial crisis.
However, some of Atlanta's larger employers have newly implemented office attendance requirements, and market players like Cousins Properties are seeing an increase in office deals. Atlanta also has a lower share of days worked at home than other metros like Houston, Dallas, and Miami. Still, measures like Placer.ai show Atlanta office attendance down 30% compared to 2019. Also, in line with national trends, Atlanta office-using employment has experienced a slight decline over the past year compared to overall growth of about 1% in total employment.
As pre-pandemic leases roll, tenants are seeking out smaller spaces. While the number of lease deals has not shifted significantly, the average square footage for new deals over the past year has declined by 30% from 2019. Piedmont Healthcare, Deloitte, and OneTrust all recently signed leases with smaller office footprints. Tenants who haven't reached the end of their lease terms are adding space to the already bloated sublet market. In the sublet market, available space is off its peak from 23Q3, and subtenants are beginning to backfill several spaces that had been vacated. However, availability remains well above the area's 10-year average, and other large blocks continue to enter the sublet market.
Supply-side pressure should diminish in coming years; construction starts fell by 60% from 2022 to 2023. Developers have delivered over 15 million SF since 2020, but the current pipeline has slowed considerably, and the less than 2.5 million SF underway is the lowest in a decade. A break in new construction will be welcome news for many 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. Bright spots of resilient demand exist around pockets of 18-hour activity, such as West Midtown and the Eastside Beltline.
Looking ahead, Atlanta's office market will likely experience a further run of negative absorption and a handful of deliveries pushing vacancy higher than the previous peak. This should pressure asking rents, which to this point have stayed in positive territory, even if concessions have weighed on net operating income.
