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ATLANTA OFFICE MARKET REPORT SECOND QUARTER 2019 Q20192 OFFICE MARKET

ECONOMIC OVERVIEW

Atlanta’s economic expansion continues with 52,400 new jobs created over the prior 12-month period ending May 2019, representing a 1.9% annual increase. During the current expansion period, total employment has expanded by nearly 600,000 jobs since its trough in early 2010, which is equivalent to a 26.8% increase over the past 9 years. A significant portion of the annual employment gains were in Professional & Business Services (+18,000 jobs), Education & Health Services (+12,000 jobs), and Leisure & Hospitality (+11,100 jobs). As a result of the strong job growth, the metro area’s unemployment rate has declined 60 basis points to 3.0% over the prior 12 months to hit its lowest level since mid-2001. Although job growth has moderated from their strong levels experienced over the past several years, State University forecasts 54,400 jobs will be created in 2019, followed by the addition of 40,600 jobs in 2020.

Atlanta remains an economic powerhouse as companies flock to the area for its low cost TABLE OF CONTENTS of doing business and proximity to an exceptional talent pool of highly skilled workers created by local universities and a strong workforce. Atlanta’s economic outlook remains ECONOMIC OVERVIEW...... 2 positive and makes it one of the best metro areas for companies seeking quality space for relocations and consolidations. As one of the fastest-growing, high-tech urban centers OFFICE MARKET ASSESSMENT...... 3 in the nation, Atlanta is leading the way in creating a national center for innovation and industry growth. Recent corporate expansion announcements by ThyssenKrupp, Anthem, Google, Salesforce.com, Starbucks, InComm, Honeywell, Pandora Media, and NET ABSORPTION & VACANCY...... 4 Zillow provide clear evidence of the area’s attractiveness to employers seeking a highly skilled and educated workforce. Norfolk Southern Corp. has recently chosen to relocate RENTAL RATES & LEASING ACTIVITY...... 5 its corporate headquarters from Virginia to , bringing with it 850 jobs and more than $500 million in economic investment. BlackRock and Accenture are also looking to Midtown for their new innovation centers. BlackRock is considering leasing CONSTRUCTION...... 6 more than 200K SF and bringing 1,000 jobs to Atlanta by 2024 while Accenture opened its tech center late last year with plans to create 800 jobs. Employment Trends SUBMARKET STATISTICS & RECENT DEALS...... 7 EMPLOYMENT TRENDS 100 4% THE TEAM...... 8 75 3% 50 2%

Thousands 25 1% 0 0% -25 -1% FOR INFORMATION: -50 -2% -75 -3% -100 -4% BILL WEGHORST -125 -5% President, -150 -6% Property Services, Southeast '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 404.671.4702 [email protected] Jobs Added Annual % Change EMPLOYMENT GROWTH BY SECTOR CHARLES ‘CHIP’ ROACH, JR Executive Vice President Atlanta Market Leader

404.671.4705 MINING CONSTR MANUF TRADE, INFO FINANCIAL 0.0% 6.9% 0.3% TRANS 1.1% 2.2% 0.5% [email protected] 0K 8.6K 0.6K 6.5K (2.2K) (0.8K) UNCHANGED JOBS ADDED JOBS ADDED JOBS ADDED JOBS LOST JOBS LOST ARIEL GUERRERO Senior Vice President, Research 713.209.5704 [email protected] PROF, EDUC. LEISURE OTHER GOV’T TOTALS SRVCS 3.5% 3.4% 3.7% 2.4% 0.3% 1.9% 18.0K 12.0K 11.1K (2.4K) 1.0K 52.4K JOBS ADDED JOBS ADDED JOBS ADDED JOBS LOST JOBS ADDED JOBS ADDED Source: U.S. Bureau of Labor Statistics; Employment Data as of May 2019 All Employees, in Thousands PAGE 2 ATLANTA OFFICE MARKET Q20192

OFFICE MARKET ASSESSMENT

The Atlanta office leasing market recorded 701,534 SF of direct net absorption during the second quarter, pushing the trailing 12-month total up to nearly 1.9 million SF. Class A properties accounted for the majority of the gains with 507,604 SF of direct space absorbed, pushing the trailing 12-month total up to 1.4 million SF. Most notably, newly built construction projects have captured virtually all of the Class A absorption gains over the past 12 months. The bulk of absorption growth has occurred in the urban core submarkets as Midtown (556K SF), Downtown (275K SF) and (262K SF) have collectively accounted for 76% of the Class A direct net absorption gains over the prior 12 months.

Atlanta’s office market enjoyed strong rent growth of 6.2% over the prior 12 months, which ranks among the top five U.S. markets. Strong fundamentals in the urban core have dominated the landscape with the largest rental rate appreciation among all submarkets driven by strong leasing activity. Despite sustained leasing demand and asking rents reaching new record levels, the restrained pace of new construction during the current cycle has kept the supply and demand fundamentals balanced. Due to the leasing success ECONOMIC INDICATORS this cycle, several developers have moved forward on several new projects primarily in Midtown as large tenants are scouting the market with future space requirements.

Large lease transaction activity during the first half of 2019 was primarily concentrated in the Midtown submarket, which accounted for 1.8 million SF or 53% of the overall market’s K leasing volume involving deals above the 25K SF threshold. The Midtown submarket 52 witnessed a flurry of pre-lease commitments by Invesco (300K SF at ), Anthem Blue Cross Blue Shield (275K SF at 712 W Peachtree), Google (161K SF at 1105 JOB GROWTH 1.9% T-12 MOS West Peachtree), Jones Day (116K SF at 500 ), and Smith, Gambrell & Y-O-Y THRU MAY 2019 Russell LLP (102K SF at 1105 W Peachtree) at . In the year ahead, a growing economy will continue to fuel leasing demand and encourage tenants to consider newer and more efficient quality space options for relocations and expansions.

FORECAST • Class A space will remain in strong demand, as tenants appear willing to pay more for the best space configurations and amenity-rich locations with prime access to MARTA as they seek to retain and attract highly skilled employees. K • The flexible space/coworking sector has emerged as a primary growth driver within 18.0 the office market and shows no signs of slowing. The creative office segment will also OFFICE JOB GROWTH experience strong leasing momentum, as traditional office tenants consider creative alternatives to meet the young talent pools’ growing demands. 34.3% • Increased construction activity is beginning to place pressure on existing office OF TOTAL GROWTH buildings to measure up to the amenities and tenant experiences that new developments can offer. In order to remain competitive, repositioning activity will pick up across the market as owners focus on significant capital improvement programs to enhance their assets. MARKET TREND INDICATORS OFFICE MARKET TRENDS Office Market Trends

4,000 24% Current Change from Previous 12-month 22% Quarter Quarter Year Forecast 3,000 20% Direct Vacancy 15.0% 18% 2,000 16% Direct Availability 18.7% 1,000 14% 12% Direct Net Absorption 1.9M SF 0 10% (T-12 mos) 8% in Thousandsof SF -1,000 6% Under Construction 7.2M SF -2,000 4% 2% Direct Asking Rents $27.56 -3,000 0% '05 '06 '07 '08 '09 '10 '11 '12 '13 14 '15 '16 '17 '18 '19 '20

Direct Net Absorption Completions Direct Vacancy % Direct Availability %

PAGE 3 ATLANTA Q20192 OFFICE MARKET

NET ABSORPTION & VACANCY

• The Class A property sector continues to outperform the broader market with positive absorption in 7 of the previous 8 quarters, totaling 3.5 million SF of direct net absorption over the period, accounting for 91.4% of the market-wide absorption growth. • The Class A property sector ended the second quarter with 507,604 SF of direct net absorption, bringing the trailing 12-month total up to just over 1.4 million SF with the bulk of the leasing gains taking place in newly built projects. • Tenants contributing to the quarterly gains in the Class A sector included McKesson’s 104K SF occupancy at Stonebridge I, CBRE’s 97K SF move-in at Three , Veeam’s 90K SF occupancy at NorthWinds VII, WeWork’s 77K SF occupancy at the Coda project, and Pandora moving into 51K SF at The Campanile Building. • Despite the healthy leasing gains, Class A direct vacancy rates have climbed 30 Bolstered by strong job growth and sustained basis points to 15.5% over the prior 12 months as new supply has slightly outpaced demand for office space across Metro Atlanta, demand with nearly 1.9 million SF coming online over the prior 12 months. landlords are expected to retain their negotiating • Class A direct availability rates have managed to slightly decline by 20 basis points power in lease negotiations, especially for those high-end space options in the urban core to 19.7% since hitting their peak during the third quarter of 2018, but will likely submarkets. creep up over the next year with additional new product coming online. • Class B properties have been impacted by the flight to quality trend but managed BILL WEGHORST to record 210,764 SF of direct net absorption during the second quarter, bringing President, the trailing 12-month total up to 445,963 SF. Property Services, Southeast • The largest quarterly gains in the Class B sector included Home Depot taking 99K SF at 340 Interstate North and FullStory with 49K SF at 1745 Peachtree St NE. • Class B direct vacancy levels improved by 30 basis points to 14.7% during the second quarter and have fallen 50 basis points over the prior 12 months. ABSORPTION/VACANCY TRENDS Meanwhile, Class B direct availability inched up 20 basis points to 17.4% but remains well below its 10-year average of 19.8%.

CLASS A DIRECT NET ABSORPTION Direct Net Absorption DIRECT NET ABSORPTION 1.4 MSF 1,500 T-12 MOS 1,000

500 CLASS B DIRECT NET ABSORPTION

In Thousands of SF Thousands In 0 SF 446K -500 '14 '15 '16 '17 '18 '19 T-12 MOS Class A Class B DIRECT VACANCY DIRECT VACANCY AND AVAILABILITYDirect Vacancy and Availability 22%

CLASS A CLASS B 20% 7% 15.5% 14. 18% 16% DIRECT AVAILABLE 14% CLASS A CLASS B 21.3M 9.5M 12% 7% 4% 10% 19. 17. '14 '15 '16 '17 '18 '19 Class A Direct Available Class B Direct Available Class A Direct Vacancy Class B Direct Vacancy PAGE 4 ATLANTA OFFICE MARKET Q20192

RENTAL RATES & LEASING ACTIVITY

• Citywide Class A asking rents jumped by $0.70 to $30.62 per SF during the second quarter and have moved up 6.2% or $1.78 over the prior 12 months largely due to healthy demand and recent construction deliveries. • Class B asking rents rose by $0.14 to $20.51 per SF during the second quarter and have appreciated by 2.9% or $0.57 per SF over the prior 12 months. • Sustained office leasing demand for high quality space have pushed Class A asking rents up $7.97 per SF or 35.2% since their low nearly 7 years ago, while Class B rents have risen 29.5% or $4.67 per SF since their cyclical low at mid-year 2012. • Buckhead has experienced the largest annual rent growth at 9.1% across all classes but Midtown continues to command the highest rental rates in the city at $36.85 per SF, up 5.3% year-over-year (excluding new product under construction). • The urban core has experienced the largest Class A annual rent growth, which include Buckhead (9.0%), Downtown (6.1%) and Midtown (3.3%) submarkets. • Landlords are expected to retain their negotiating power and push asking rents Atlanta’s office market is thriving on its strong higher but at a slower pace during the second-half of 2019. As a result, tenants fundamentals as sustained demand for quality space have pushed asking rents to record levels. must be mindful of their leasing plans in advance of lease expiration, especially as New deliveries are providing a wider range of options construction pricing and rents are at an all-time high. for tenants and greater competition among landlords • Large lease transaction activity has remained active with 15 leases signed over is pushing up incentive packages, even as asking the trailing 4 quarters exceeding the 100K SF mark, with 11 of these leases rents remain on a slower-but-still upward trajectory. being new deals. In addition, 30 deals have been inked between 50K to 100K SF, with new and expansion deals accounting for 76% of the leasing volume. Since SCOTT REES renewals have accounted for less than one-fourth of the larger transaction volume, Senior Vice President, Leasing this is good momentum for the office market. Southeast Region • Although office densification has led to companies leasing less space per employee during the current economic expansion, corporate relocations and strong organic job growth combined with relatively low construction deliveries have kept vacancy RENTS/LEASING ACTIVITY rates below long-term averages and helped drive strong rent growth. RENT GROWTH (Y-O-Y) RENTAL RATES Rental Rates Y-O-Y % change, FS GRS Year-over-Year % Change, FS Gross 10% 9% 8% % 7% 6% 6.2 5% 4% 3% 2% SUBLEASE AVAILABILITY 1% 0% '14 '15 '16 '17 '18 '19 Class A Class B SF DIRECT LEASING ACTIVITY Direct Leasing Activity 3.4M Rolling 12-Months Rolling 12-Months 11.1% SINCE PEAK 12,000

10,000

8,000 DIRECT LEASING ACTIVITY (ALL CLASSES)

6,000

4,000 SF In of In SF Thousands 10.9 M 2,000 T-12 MOS 0 13.7% '14 '15 '16 '17 '18 '19 BELOW 5-YR. AVG.

Class A Class B PAGE 5 ATLANTA Q20192 OFFICE MARKET

CONSTRUCTION

• Atlanta’s office construction volume has nearly doubled over the prior 12 months to nearly 7.2 million SF underway, which is currently 47.4% pre-leased (excluding corporate owned projects) with strong leasing momentum. • Build-to-suit office construction activity accounts for just over 2.3 million SF or nearly one-third of the competitive office product underway across the market. The largest build-to-suit office projects include State Farm’s Park Center Phase II (1.1 million SF), Norfolk Southern HQ (750K SF), and Anthem Technology Center (352K SF). • The largest concentration of office space under construction is found in Midtown Atlanta with nearly 3.8M SF underway, accounting for just over half of Atlanta’s office development pipeline. The submarket is expected to see even more projects CONSTRUCTION break ground in 2019, such as Midtown Union with its 300K SF pre-lease commitment by Invesco, which is expected to deliver in 2022. • During the second quarter of 2019, there was approximately 472K SF of new office product added to the competitive inventory, which is already 34.4% leased. • The largest construction delivery involved 725 Ponce, a 371K SF office tower SF currently 19% leased with a recent deal signed by McKinsey and Co. (69K SF) but 7.2 M there are several deals in negotiations involving Blackrock, Inc., Starbucks and WeWork that could help fill the entire building. OFFICE SPACE UNDER CONSTRUCTION % • Construction activity has picked up with just over 5.5 million SF of new product 47.4 PRE-LEASED breaking ground over the prior 12 months. The anticipated increase in construction deliveries over the next few years is expected to place upward pressure on vacancy and could mitigate the leverage currently held by landlords, who have been able to push rental rates to record highs. • The largest projects to kick-off construction during the second quarter occurred in Midtown, which included Norfolk Southern Corp’s 856K SF HQ build-to-suit project at 650 West Peachtree , Selig Enterprises’ 664K SF office tower at 1105 W Peachtree Street NW (already 38% pre-leased by Google and Smith, Gambrell & Russell LLP), and Portman Holdings’ 310K SF 712 W Peachtree. SF • Looking ahead, the Atlanta office market is forecasted to deliver approximately 2.2 5.5 M million SF of office competitive space in 2019, followed by an additional 3.0 million NEW OFFICE BREAKING GROUND SF of new product coming online in 2020. T-12 MOS Construction Pipeline CONSTRUCTION PIPELINE 8,000 7,000 6,000 5,000 4,000 3,000

In Thousandsof SF 2,000 1,000 0 '14 '15 '16 '17 '18 '19 Updated 6/24/2019 SF Under Construction Delivered SIGNIFICANTSIGNIFICANT PROJECTS PROJECTS UNDER CONSTRUCTION UNDER CONSTRUCTION 2.2 M % PRE- TARGET FORECASTED SUPPLY IN PROJECT NAME SIZE (SF) SUBMARKET MAJOR TENANT LEASED DEVELOPER DELIVERY Norfolk Southern HQ * 750,000 Midtown Norfolk Southern 100% Cousins Properties 3Q21 2019 Park Center - State Farm Ph II Bldg 2 * 670,000 Central Perimeter State Farm 100% KDC RE Development 1Q20 1105 WP 664,184 Midtown Google, Smith Gambrell & Russell 38% Selig Enterprises 2Q21 Atlantic Yards North, South 523,511 Midtown N/A 0% Hines 2Q21 Park Center - State Farm Ph II Bldg 3 * 429,200 Central Perimeter State Farm 100% KDC RE Development 1Q21 Anthem Technology Center * 352,000 Midtown Anthem Blue Cross Blue Shield 100% Portman Holdings, LLC 1Q20 One 340,000 Buckhead N/A 0% Simon Property Group, Inc. 1Q21 Twelve24 335,000 Central Perimeter Insight Global 61% Trammell Crow Co. 1Q20 Battery at SunTrust Park 332,486 Northwest Thyssenkrupp 55% Braves Development Co. 1Q20 712 W Peachtree 310,000 Midtown N/A 0% Portman Holdings, LLC 1Q21 Star Metals Offices 267,000 Midtown Regus Spaces 36% The Allen Morris Co. 1Q21 10000 Avalon Blvd 249,579 North Fulton AXIS Capital Holdings 40% Hines 1Q20 T3 at 232,141 Midtown N/A 0% Hines 4Q19 Interlock 200,000 Midtown WeWork, 83% SJ Collins Enterprises 3Q20 8 West (889 Howell Mill Rd) 200,000 Midtown N/A 0% Atlantic Capital Properties 2Q20 *Build to Suit PAGE 6 ATLANTA OFFICE MARKET Q20192

SUBMARKET STATISTICS

TOTAL SPACE AVAILABLE DIRECT AVAILABLE / VACANT DIRECT NET ABSORPTION CONSTRUCTION ASKING RENT Direct Direct Trailing Completions Under Submarkets Total Inventory SF Direct Sublease Availability Vacancy Current Qtr. 12 mos. Current Qtr Construction Class A Class B Buckhead 21,511,649 3,501,870 419,639 16.3% 13.4% 106,697 339,576 49,200 415,000 $36.70 $26.37 Midtown 20,960,486 4,220,812 366,001 20.1% 13.7% 148,244 618,713 422,447 3,785,261 $37.40 $28.82 Downtown 20,581,874 3,525,298 125,752 17.1% 14.6% 88,298 385,132 - 69,429 $28.74 $22.90 Central Perimeter 26,555,261 5,515,635 708,263 20.8% 16.5% -220,036 -129,356 - 1,434,200 $30.42 $22.99 Northwest 29,085,457 5,082,756 961,185 17.5% 15.3% 184,059 132,994 - 611,786 $27.54 $21.32 North Fulton 23,316,656 4,048,942 477,518 17.4% 13.4% 278,902 172,240 - 487,818 $27.05 $20.70 Northeast 17,946,759 4,452,734 277,539 24.8% 20.4% 139,355 180,236 - 60,000 $22.18 $16.98 8,363,663 1,114,042 65,894 13.3% 11.2% -23,985 175,360 - 326,300 $22.82 $18.28 Total 168,321,805 31,462,089 3,401,791 18.7% 15.0% 701,534 1,874,895 471,647 7,189,794 $30.62 $20.51

TOTAL SPACE AVAILABLE DIRECT AVAILABLE / VACANT DIRECT NET ABSORPTION CONSTRUCTION ASKING RENT Sublease Direct Direct Trailing Completions Under Asking Y-O-Y Property Types Total Inventory SF Direct Available Available Availability Vacancy Current Qtr. 12 mos. Current Qtr Construction Rent Change Class A 107,972,624 21,319,589 2,533,602 19.7% 15.5% 507,604 1,446,844 422,447 6,596,847 $30.62 6.2% Class B 54,770,281 9,511,380 856,952 17.4% 14.7% 210,764 445,963 49,200 592,947 $20.51 2.9% Class C 5,578,900 631,120 11,237 11.3% 8.9% -16,834 -17,912 - 0 $16.16 8.3% Total 168,321,805 31,462,089 3,401,791 18.7% 15.0% 701,534 1,874,895 471,647 7,189,794 $27.56 6.2%

SIGNIFICANTSignificant Lease LEASE Transactions TRANSACTIONS | Q2 2019 Tenant SF Type Tenant Industry Building Class Submarket Invesco Ltd. 300,000 New Financial Services Midtown Union A Midtown Anthem Blue Cross Blue Shield 275,000 New Insurance 712 W Peachtree St A Midtown Jones Day 115,896 New Law Firms 500 Colony Square A Midtown Data Scan Technologies LLC 87,972 Renewal Technology Cabot Business Center @ Meadows B North Fulton The Clorox Co 72,180 New Manufacturing Hillside - Sanctuary Park A North Fulton LGE Community Credit Union 59,348 New Financial Services Cumberland Center II A Northwest LeaseQuery 52,888 New Business Services A Central Perimeter Invesco Ltd. 49,970 Expansion Financial Services Two Peachtree Pointe A Midtown CommonGrounds 49,506 New CoWorking A Midtown Fleetcor Technologies 46,453 New Financial Services Terminus 100 A Buckhead

METHODOLOGY

TOTAL INVENTORY: The total inventory includes all single and multi-tenant leased office buildings with at least 20,000 square feet of gross rentable square footage. TOTAL SPACE AVAILABLE: Available space currently being marketed which is either physically vacant or occupied. DIRECT SPACE: Space that is being offered for lease directly from the landlord or owner of a building. Under construction space is not included in space available figures. SUBLEASE SPACE: Space that has been leased by a tenant and is being offered for lease back to the market by the tenant with the lease obligation. DIRECT VACANCY RATE: Direct space physically vacant divided by the total rentable inventory. DIRECT NET ABSORPTION: The net change in occupied direct space over a given period of time. UNDER CONSTRUCTION: Office buildings which have commenced construction as evidenced by site excavation or foundation work. DIRECT ASKING RENTS: The quoted full-service asking rent for available space expressed in dollars per sq. ft.

PAGE 7 ATLANTA OFFICE MARKET Q22019

BILL WEGHORST CHARLES ‘CHIP’ ROACH, JR SCOTT REES STEPHEN CLIFTON ZACH WOOTEN President, Executive Vice President Senior Vice President Senior Vice President Senior Vice President Property Services, Southeast Atlanta Market Leader Leasing Leasing Leasing 404.671.4702 404.671.4705 404.671.4746 404.671.4719 404.671.4715 [email protected] [email protected] [email protected] [email protected] [email protected]

JULIE MOTSINGER HAL PAYNE SHELBY LEE STACY LANGSTON TREY WEGHORST Executive Vice President Senior Chief Marketing Vice President Leasing Director of Operations, Southeast Engineer Manager Leasing & Marketing­ Associate 404.671.4745 678.916.2000 404.671.4765 404.671.4704 404.671.47677 [email protected] [email protected] [email protected] [email protected] [email protected]

ARIEL GUERRERO JAMES DECMAN DOUG BERRY Senior Vice President, Research Vice President, Director of Research Manager Creative Director 713.209.5704 713.209.5971 713.209.5897 [email protected] [email protected] [email protected]

ABOUT MADISON MARQUETTE Madison Marquette is a leading private real estate investment manager, service provider, developer and operator headquartered in Washington, D.C. As a full-service real estate provider, the company delivers integrated leasing and management services to a diverse portfolio of 330 assets in 24 states and manages an investment portfolio valued at over $6 billion. The company partners with global, institutional and private investors to provide industry-leading investment and advisory services across asset classes -- including mixed-use, retail, office, medical, industrial, senior housing and multi-family. Founded in 1992, the company built its reputation on the successful development, repositioning and redevelopment of landmark mixed-use assets, and now leverages that performance legacy to provide clients with exceptional asset services and investment advice. Madison Marquette has over 620 professionals providing nationwide service from 13 regional markets and is a member of the Capital Guidance group of companies.