COVID-19 upended the office markets of metro Atlanta and big cities across the nation. But now, with more companies pushing their workers back into the office, leasing is up and optimism is rising among investors seeking to buy distressed office towers at a discount.
Zac Gruber, president of Miami-based real estate investment firm Banyan Street Capital, told a crowd at the Emory Goizueta Real Estate Conference last week that he’s noticed an increase in the “office curious” — those searching for opportunity among a market in recovery.
“You really have to be a stock picker, because you could have a really excellent building on the wrong corridor and you’re completely screwed and vice versa,” said Gruber, whose firm owns four office properties in Atlanta, including downtown’s 191 Peachtree. “You could have a great building that just needs (new investment) that’s on the exact right corner and make a ton of money.”
New data shows the amount of available office space in the Atlanta area decreased during the first three months of the year, mostly because of new lease signings. About 32.5% of all office square footage in the Atlanta area was either vacant or otherwise available to rent at the end of March, according to real estate services firm CBRE.
Although that’s still near historic highs, the amount of leasing activity in the region has increased. Chris Thomson, senior field research analyst at CBRE, said it’s a sign that pandemic-era hesitancy is starting to wane.
“Some of those big footprint deals that (our brokers) were interested in a couple months back are actually coming to fruition,” Thomson said. “So it looks like we’re in a good spot, and I’m optimistic for just how things are going.”
Several companies, including AIG, TriNet and Duracell, have announced expansions in metro Atlanta in recent months, increasing their office footprints and adding new employees. Duracell’s new office, a global research and development headquarters within Georgia Tech’s life sciences district called Science Square, will employ 110 workers and was supported by a $1 million state grant and an $870,000 tax break approved Tuesday by the Development Authority of Fulton County.
Ticket reselling firm StubHub is the latest to join that list of expansions, subleasing nearly 56,000 square feet at 7000 Central Park in Sandy Springs, according to a report by the Atlanta Business Chronicle.
Chris Godfrey, principal of office leasing in Atlanta for Avison Young, said companies that shrank their office footprints in the wake of the pandemic are beginning to reverse course.
“We’re seeing companies that had dissolved offices in 2020 coming back with a big splash in a big way this year,” he said.
A clear divide
Not all office buildings are created equal, and that’s clear when looking at which ones are attracting tenants and investors.
Top-quality buildings, which the industry calls trophy or class A, have much higher occupancies than their discount counterparts, often called class B. Leasing activity dipped after 2022 across the board, but class A properties saw activity rebound in 2024 while class B leasing has remained down, according to data from real estate services firm Cushman & Wakefield.
Godfrey said it shows there’s still a stark divide between properties that garner interest.
“The winners are ones that have an owner and lender that have resources to do deals,” he said. “And then you have the losers that just can’t do deals because they’re in kind of this freeze-hold pattern as they figure out what’s next.”
Several struggling properties, especially those with loan issues, have either been returned to their lender or sold at steep discounts to avoid foreclosure.
Credit: Courtesy of Landmark Properties
Credit: Courtesy of Landmark Properties
Student housing developer Landmark Properties in mid-April acquired the four-building Northcreek Office Park in Buckhead for nearly $78 million, a 20% discount from its last sale in 2016. A week earlier, the Atlanta Braves acquired Pennant Park, a 34-acre suburban office complex near Truist Park, for $93 million, only a $6 million premium over the property’s last sale in 2016 — despite all of the development in the area surrounding The Battery Atlanta.
Reed Kracke, a partner at Charlotte-based Asana Partners, said at Emory’s conference last week that several banks and institutional investors are trying to off-load underperforming pieces of their office portfolios. Prospective buyers with the resources to refresh those buildings and attract tenants could find hidden gems.
“A lot of institutions are trading out of office just to decrease exposure,” Kracke said. “They don’t really care about the price they get, … so that creates a lot of opportunity to reinvest.”
Struggles remain
Some buildings, however, need more than a new owner and a fresh coat of paint.
The bulk of the vacancy in Atlanta is concentrated in the worst-performing offices, which tend to be older and in less desirable corridors. Analysts say those high-vacancy buildings have dragged the rest of the market down as a whole, even though top-quality towers are able to still command increasing rents.
For eight of the past nine quarters, the region saw negative absorption, a measure of how much the office rental market is expanding or contracting, according to CBRE.
Godfrey said the amount of unleased trophy space has been decreasing, a roughly 4.7% decline over the past year. For the amount of unwanted space to decrease overall, he said more buildings will have to be demolished or undergo costly conversions to another use, such as residential.
“(Demolitions) are really exciting for the office world, because it’s rightsizing the market without having to do very expensive conversion projects,” he said.
Analysts are also optimistic that the past few years of tepid office demand is leading to almost no new office projects being built. No new office buildings finished construction during this year’s first quarter, and only about 474,000 square feet of workspace is under construction.
“The lack of new supply being added to the market and some large to midsize move-ins have really pushed that vacancy rate down,” said Audrey Giguere, research manager for Cushman & Wakefield.
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