Market Update Office 2016 Year End LFB Layout 1
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ATLANTA OFFICE MARKET YEAR END 2016 Total Overall Net Under Total Average Inventory Vacancy Absorption* Construction Deliveries* Lease Rate 210,282,817 SF 14.8% 1,111,621 SF 4,617,738 SF 887,184 SF $23.35 MARKET HIGHLIGHTS Atlanta’s office market hit its stride in 2016, registering an impressive 1.063 MSF in ab- sorption in the fourth quarter alone. While the region’s performance certainly dropped from 2015 levels, a year-end total of 1,111,621 SF of improvement illustrates our region’s continued momentum. We will closely watch the delivery of 4.6M SF of new projects and how these events affect net absorption levels in 2017. Material submarket fundamentals show the greatest improvement in Midtown (583,478 SF absorbed) and Northwest (304,382 SF absorbed) which ironically placed in order for development activity as well. Significant lease transactions including Georgia Tech at CODA (289,000 SF), Troutman Sanders at Bank of America Plaza (230,416 SF), and HD Supply at Encore Center (220,000 SF) drove Atlanta’s run last year. While office landlords still hold the most cards in this expansion cycle, tenants will find numerous availability options in Northeast Atlanta and Central Perimeter. As we reach the late expansion phase of this cycle we look to development patterns and conclude construction levels remain surprisingly constrained compared to similar points in the past. The vast majority of significant new projects have pre-lease components but flying under the scale radar are 309 East Paces Ferry (Buckhead), Armor Junction (Buck- head) and Stockyards Atlanta (Midtown); all delivering the loft office environment desired on a speculative basis. While these offerings will not change market fundamentals, they will attract occupants from traditional office towers. We forecast continued interest in Class A & B investment offerings citing positive market fundamentals and rising rental rates. With the previously mentioned cap rate spread be- tween classes, look for more Class B trades in 2017 as investors chase yield. The plus $4 Billion transactions list for Metropolitan Atlanta last year reflected five sales above 900,000 SF and included 191 Peachtree Tower (Downtown), Atlanta Financial Center (Buckhead), and Sanctuary Park (North Fulton). METRO ATLANTA REPRESENTATIVE SALES ACTIVITY INVESTMENT SALES OWNER/USER SALES One Atlantic Center 1,100,312 SF $289.10/SF 3300 Cumberland Boulevard 65,000 SF $251.82/SF Purchased by Starwood Capital Group on 10/31/16 Purchased by First Citizens Bank on 11/28/16 Atlanta Plaza 631,665 SF $217.68/SF 4800 Ashford Dunwoody Road 45,000 SF $178.89/SF Purchased by Oaktree Capital Management on 07/28/16 Purchased by City of Dunwoody on 08/31/16 2970 Clairmont Road 213,165 SF $93.82/SF The Raintree Building 24,019 SF $196.62/SF Purchased by Highbrook Investors on 10/13/16 Purchased by Armin Uskouei on 11/18/16 * Figures reflected throughout this report for ABSORPTION and DELIVERIES Lavista Associates, Inc. - Atlanta, Georgia are cumulative for mid-year and year end as appropriate. ATLANTA OFFICE MARKET KEY METRO ATLANTA SUBMARKETS YEAR END 2016 BUCKHEAD CURRENT PREVIOUS TIME PERIODS CHANGE • The regions financial services submarket finished 2016 on VACANT Mid-Year ‘16 2,468,731 -0.26% a pedestrian note, registering a six month absorption of 2,462,166 SF Year End ‘15 2,510,773 -0.19% 59,376 SF. SF UNDER Mid-Year ‘16 679,505 +65,707 • This lack of activity did little to move Buckhead’s vacancy 745,212 CONSTRUCTION Year End ‘15 546,765 +198,447 rate which now stands at 11.7%. RENTAL Mid-Year ‘16 $31.55 +$0.71 • Representing this submarket’s only significant delivery in $32.26 RATE Year End ‘15 $30.67 +$1.59 2017, Three Alliance Center will open with tremendous leasing momentum. ABSORPTION Mid-Year ‘16 1,782 +57,594 59,376 SF Year End ‘15 257,929 (198,553) ACTIVITY: State Street Bank committed to 51,000 SF at Three Al- liance Center; CareerBuilder expanded to 58,000 SF at 3445 Mid-Year ‘16 40,118 12,693 DELIVERIES 52,811 Peachtree Road; Merrill Lynch expanded to 131,000 SF at The Pin- Year End ‘15 0 52,811 nacle. CENTRAL PERIMETER CURRENT PREVIOUS TIME PERIODS CHANGE • Atlanta’s corporate user submarket posted 179,613 SF of VACANT Mid-Year ‘16 4,019,989 +10.5% absorption during the final six months of 2016. 4,442,376 SF Year End ‘15 4,080,767 +8.9% • Given the delivery of 602,000 SF at State Farm’s Park SF UNDER Mid-Year ‘16 972,402 -602,000 Center, not surprisingly this submarket’s vacancy rate rose 370,402 CONSTRUCTION to 15.5%. Year End ‘15 972,402 -602,000 RENTAL Mid-Year ‘16 $25.19 +$1.18 $26.37 • Considering the insurance giants announced additional con- RATE struction and 4004 Perimeter Summit’s completion this Year End ‘15 $23.81 +$2.56 fall, we project more tenant alternatives through 2019. ABSORPTION Mid-Year ‘16 (121,423) +1,464,227 179,613 SF ACTIVITY: State Farm occupied 439,000 SF at Park Center; In- Year End ‘15 28,228 +1,314,576 sight Global expanded to 65,000 SF at Ashford Green; Global Pay- Mid-Year ‘16 0 +602,000 DELIVERIES 602,000 ments committed to an additional 25,000 SF at 10 Glenlake. Year End ‘15 0 +602,000 DOWNTOWN CURRENT PREVIOUS TIME PERIODS CHANGE • The original Atlanta office submarket registered an impres- VACANT Mid-Year ‘16 4,676,961 -6.2% 4,388,568 sive 288,393 SF of absorption during the second half of the SF Year End ‘15 4,472,373 -1.9% year. SF UNDER Mid-Year ‘16 61,000 0 61,000 • Accordingly, Downtown’s vacancy rate dropped from 17.9% CONSTRUCTION Year End ‘15 0 +61,000 to 16.8% over the past six months. RENTAL Mid-Year ‘16 $22.49 +$1.47 $23.96 RATE • With numerous new landlords acquiring submarket assets, Year End ‘15 $21.60 +$2.36 look for aggressive leasing measures to continue this mo- ABSORPTION Mid-Year ‘16 (204,588) +492,981 mentum. 288,393 SF Year End ‘15 (53,820) +342,213 ACTIVITY: Drew, Eckl & Farnhum leased 39,000 SF at SunTrust Mid-Year ‘16 0 0 Plaza; Metro Atlanta Chamber relocated to 191 Peachtree Tower, tak- DELIVERIES 0 Year End ‘15 0 0 ing 25,000 SF; TeX occupied 37,000 SF at 250 Williams Street. * Figures reflected throughout this report for ABSORPTION and DELIVERIES Lavista Associates, Inc. - Atlanta, Georgia are cumulative for mid-year and year end as appropriate. ATLANTA OFFICE MARKET KEY METRO ATLANTA SUBMARKETS YEAR END 2016 MIDTOWN • Midtown Atlanta continues to perform nicely, posting CURRENT PREVIOUS TIME PERIODS CHANGE 204,233 SF of absorption since Mid-year 2016. VACANT Mid-Year ‘16 2,600,798 -6.3% 2,436,532 SF • The region’s trendy submarket’s vacancy rate stands at Year End ‘15 2,980,043 -18.2% 11.4% resulting from positive absorption in 14 of the last 15 SF UNDER Mid-Year ‘16 699,873 +685,127 1,385,000 CONSTRUCTION quarters. Year End ‘15 0 +1,385,000 • Significant development projects including Georgia Tech’s RENTAL Mid-Year ‘16 $27.75 -$0.06 $27.69 RATE CODA project (760,000 SF) and NCR’s Headquarters Year End ‘15 $26.39 +$1.30 (485,000 SF) will lead this submarket to new heights. ABSORPTION Mid-Year ‘16 379,245 (175,012) 204,233 SF ACTIVITY: Activity: The Georgia Tech Foundation purchased The Year End ‘15 311,742 (107,509) Biltmore office project; Polsinelli moved into 45,000 SF at One At- Mid-Year ‘16 0 +91,873 lantic Center; Swift Currie expanded into 115,000 SF at The DELIVERIES 91,873 Peachtree. Year End ‘15 81,629 +10,244 NORTH FULTON CURRENT PREVIOUS TIME PERIODS CHANGE VACANT Mid-Year ‘16 3,259,792 +2.5% • Atlanta’s premier suburban submarket took a step back the 3,340,529 SF Year End ‘15 3,329,418 +0.3% past six months posting negative absorption of 52,737 SF. SF UNDER Mid-Year ‘16 385,575 +209,643 • This absorption aberration moved North Fulton’s vacancy 595,218 CONSTRUCTION Year End ‘15 37,689 +557,529 rate to 13.3%. RENTAL Mid-Year ‘16 $21.60 +$1.26 • Record leasing activity in recent years has spurred devel- $22.86 RATE Year End ‘15 $20.57 +$2.29 opment at 8000 Avalon, Three Eidson and Windward Park. ABSORPTION Mid-Year ‘16 107,315 (160,052) ACTIVITY: ACE Insurance expanded into 108,000 SF at Royal (52,737) SF Year End ‘15 473,382 (526,119) Center Two; Change Healthcare committed to 69,000 SF at Cor- porate Center Two; TSYS renewed 63,000 SF at 4501 North Point Mid-Year ‘16 37,689 (9,689) DELIVERIES 28,000 Parkway. Year End ‘15 52,000 (24,000) NORTHEAST • Northeast Atlanta appears to have stabilized after three CURRENT PREVIOUS TIME PERIODS CHANGE tough years registering 108,660 SF of absorption since VACANT Mid-Year ‘16 5,129,623 -2.4% 5,006,827 SF July. Year End ‘15 4,987,428 +0.4% SF UNDER Mid-Year ‘16 161,000 (27,000) • With a posted 22.1% vacancy rate, this submarket has more 134,000 CONSTRUCTION available space than any region area. Year End ‘15 144,099 (10,099) RENTAL Mid-Year ‘16 $17.07 +$0.63 • We project Peachtree Corners fundamentals to improve in $17.70 RATE Year End ‘15 2017 given its location and economic values.