Published on December 29th, 2015 |0
Buckhead office outlook: 20% higher rents; demand outpaces supply
Add in a projected job growth over the next two years at 20,000 office jobs, and rents should jump by 20 percent during that time, Ahrenkiel said. He said the Buckhead market is already seeing a 15-20 percent increase in rents and a decrease in concessions being offered.
There are only two significant trophy office buildings presently underway—Riverwood 200 in the Cumberland/Galleria area and Tishman’s own Three Alliance Center in Buckhead—so rents are now topping $40 per square foot on the newest and best products.
Still, Regent Partners founder David Allman said Atlanta is still relatively inexpensive at $40 per square foot when compared to some of its peers. “When you’re talking about your good spaces, the good deals are over,” Allman said.
“There are not that many good sites for new development in Buckhead,” Allman said. “Demand will outpace supply. Buckhead is supply constrained.”
Ahrenkiel and Allman were part of a Buckhead office panel that included Cushman & Wakefield’s Ken Ashley, OliverMcMillan and BlackRock’s advisor Robert Welanetz, and Stewart Title Guaranty Company’s Rob Reeder, who moderated the discussion.
Ahrenkiel pointed out that in 2010 there were five development sites in Buckhead’s central commercial core. “Since then, three of those were taken up by residential developments. We have an extremely diversified market.”
Ashley said he was “a little worried” about the number of new apartment developments springing up around town and whether developers were getting ahead of themselves.
While fundamentals remain strong, according to Haddow & Co’s recent report, there could be signs of cracking in Atlanta’s seemingly unstoppable multifamily industry. While rents shot up another 10 cents per square foot on average to $1.76 per square foot, the firm reports that same-unit rents actually slipped nearly 4 percent year-over-year.
But for Allman, a new apartment boom is good news for Buckhead, as it “creates a better balance” between residential and office uses in the submarket. “It helps the traffic by densifying and
having shorter commutes,” David says. “And it puts people on the streets.”
Welanetz said, “Densification reasonably done is a good thing for Buckhead.”
As for traffic, Ashley stated, “Traffic is and always will be a product of Buckhead’s success.”
Allman, who also is board chair of the Buckhead Community Improvement District, told the audience, “There are a lot of things in the pipeline that will improve traffic throughput.” However, he added, “20 years ago the biggest problem was traffic and 20 years from now the biggest problem will still be traffic.”
And, Ahrenkiel added, “Most developments are happening close to MARTA.”
“The perception is that Atlanta has become a major important market,” said Welametz. “Having major regional developers involved helps the market credibility. “The quality of life in Buckhead and Atlanta is phenomenal….cost effectiveness also. Buckhead is well-regarded worldwide,” he added.
Being an advisor to Buckhead Atlanta developer OliverMcMillan, Welametz also spoke about retail development, stating “rents are sustainable for retail. The more the resident and tourist interest in the Buckhead Village type of environment, the more sustainable retail rents will be.”
It’s not just that companies are willing to pay more for any space. Ashley noted that it’s the co-working office space that has really taken the rent jumps by storm, such as Atlanta Tech Village, which in effect charges $40 per square foot.
In Midtown, “Ponce City Market even charges higher rates than Bank of America Plaza, the tallest building in the Southeast,” Ashley said. “Clearly, people are voting with their feet for community.”
Former Atlanta Mayor and Buckhead Coalition President Sam Massell noted in his prelude to the panel discussion, “In 2010, during the recession, office sales in Buckhead were $10 million. By 2012, that number shot up to $329 million. A year after? $638 million. In 2014: $690 million.” This year Sam said, “Office trades in Buckhead are approaching $1.9 billion.”
Investors still see office as a safe, predictable investment. “What makes Buckhead attractive to an investor is that it is supply constrained,” Ahrenkiel stated. Atlanta is still considered a bargain, he adds, given that the last five office investments Tishman eyed in other markets will ultimately trade at more than $1,000 per square foot.
Ashley told the audience of about 300 that activity among potential office tenants in Buckhead is “way, way down.” He said the potential certainly is there, as more than 1 million square feet of tenant leases expire in the next two years.
But Buckhead does not have a lot of available inventory, even with an 11 percent vacancy rate. “There are no 100,000 square foot spaces available. People are having to adjust to these extraordinary price increases,” Ashley said.