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Published on June 24th, 2015 |

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Office space panel: Buckhead to remain strong in leasing, new space

The general consensus among a panel of six leaders in office space development Tuesday morning was that Buckhead—the most saturated of the three leading Atlanta sub-markets—is still expected to be remain strong in leasing of existing space and in developing new space.

The two panel discussions on the morning of June 23, produced by Bisnow online real estate news and held at the Atlanta St. Regis Hotel in Buckhead, were examining Class A office space to

Hines executive John Heagy, right, discuses the new dynamics in office space environments as Jackson Corporate Real Estate CEO Scott Jackson listens.

Hines executive John Heagy, right, discuses the new dynamics in office space environments as Jackson Corporate Real Estate CEO Scott Jackson listens.

co-working environments and everything in between. The first panel was on “How Class A Adapts.”

John Heagy, senior managing director for Hines Southeast, said “a fundamental change is happening in the industry: the consumer has precise view of where they want to be. Eighty to 90 percent of the developments are on 10 percent of the land.”

Heagy added that today’s customers want transit and walkability as key factors in their office space location…they want an “urban, walkable environment.”

Two of the panelists from tghe developmenm end of the business were Batson-Cook's Curt Rigney, left, and Daniel Corporation's Stever Baiole.

Two of the panelists from the development end of the business were Batson-Cook’s Curt Rigney, left, and Daniel Corporation’s Steve Baile.

Daniel Corporation Senior Vice President Steve Baile who listed the three primary Atlanta sub-markets as Buckhead, Midtown and Central Perimeter, pointed out there is still a lot of available land in North Fulton and the northwest Atlanta sub-markets.

“The sprawling market may be coming back,” countered Scott Jackson, CEO of Jackson Corporate Real Estate. “But foreign money is looking for urban density, not suburban density like Avalon (the new major development in the Alpharetta area).”

Heagy said Hines is beginning to build in Midtown, “but it is not a typical office building.” The T-3 product will have timber framework, brick exterior accents and a steel exterior.

“We are all getting and education on what we need to deliver to our clients,” Heagy explained. “The new buildings of ours will not have suspended ceilings. That is a relic of the past. Companies are going for open environments and developers are being very creative.”

Baile added, “A lot of that creativity is involved in recruiting of workers” by the companies.

Portman Holdings Director Travis Garland makes a point about office markets.

Portman Holdings Director Travis Garland makes a point about office markets.

Portman Holdings Director Travis Garland pointed to the Ponce City Market project as “a huge eye-opener. It is a good example of a rifle shot” in what was otherwise a less active office market. Baile agreed, calling Ponce City Market “one of the coolest things.”

Garland, who pointed out that Portman is breaking ground on a 400,000-square-foot office tower in Charlotte, referred to Charlotte as “a lot smaller market than Atlanta. Charlotte has one urban core. Atlanta has three or four.”

Garland said Charlotte missed out on a lot of the corporate relocations that have taken place, many of which came to Atlanta. “The concessions in Charlotte are not like they are in Buckhead,” he added.

“Market fundamentals will limit the extent of overbuilding this time,” Garland predicted. “There won’t be four towers going at the same time. Eighteen

Panel moderator Stephanie Friese Aron, managing partner with Pursley Friese Torgrimson, laughs oave a point made, along wsith Paul Johnson, senior direcftor with Marcuss & Millichap.

Panel moderator Stephanie Friese Aron, managing partner with Pursley Friese Torgrimson, laughs over a point made, along with Paul Johnson, senior director with Marcus & Millichap.

months ago, it was very tough to capitalize a spec office building. You can capitalize a building more without pre-leasing, depending on how you go about financing it,” he added.

Heagy added, “This time we got well into the single digit vacancies before we went back to doing new projects.” He said all of Hines next projects in Atlanta are spec buildings.

“The finance markets are back up,” Jackson said. “Equity requirements have gone from 80 percent to 75, 70 and even 65 percent. The numbers are attractive. It is a given interest rates will go up, but we don’t know how much.” He suggested it is a good market for buyers, sellers and developers.

Batson-Cook Co. Senior Vice President Curt Rigney said, “The biggest challenge is going to be in the labor market.” He pointed out that in 2008 crews left the industry for other industries, such as the booming multi-family housing. It is hard to find labor to work on all the new projects.

“Prices on the materials side are going up,” Rigney “Trade contractors and laborers are being selective on where they want to work. Costs have increased in the rage of 4-6 percent a year since 2012, and in some markets 4-6 percent per quarter.

“Construction costs are now inching above the level of pre-recession construction costs,” Rigney stated.

Heagy added, “Rental rates are going up along with that….and will continue to go up.” But he denied that there has been a large push-back with that. “What we are seeing right now is all big tenants and there is no push-back from them on rental rates.”

Heagy pointed out that these companies are paying $3 on energy, $30 on office space per employee and $300 on employee expenses. “Office rental rates is not where they are putting their efforts” in attempting to reduce costs of operations.

Rigney said, “The primary effort is to be first to market and at the lowers cost. We are starting to see lean construction….More collaborative efforts between contractors and developers.” He said the results is in building a 300,000-square-foot office tower in less than a year.

Paul Johnson, senior director of Marcus & Millichap, said Atlanta is going to be the New York of the South, with more and more companies coming to Atlanta.

Jackson predicted that next year is going to be another good year for the office market, as it has been this year, to which Baile added, “Atlanta stacks up against anybody in the market.”

Heagy said a reason for that is “we have incredible leadership in this state helping to bring companies here. He singled out Georgia Power as a powerhouse in those efforts and called the utility an “unsung hero.”

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