May 2010

It is the best of times, it is the worst of times, it is the time of free rent, it is the time of big TI’s, it is the time of lease concessions.  Perhaps this is not the exact perspective Charles Dickens had in mind when he created this quote but it certainly fits the current Atlanta office market.  So what is it?  The best of times or the worst truly depends on which side of the table you’re sitting on.   

So where are we now?

A brief synopsis of the Metro Atlanta office market looks like this:

The TOP LEASES of 2009 (in sequence PROPERTY, SUBMARKET, TENANT, OWNER, SIZE SQ. FT.)

3003 Perimeter Summit
Central Perimeter
AutoTrader.com
Hines
350-400K (TBD)

Peachtree Center
Marquis II Downtown
SunTrust
Eola Capital
252,833

999 Peachtree
Midtown
Sutherland Asbill
Jamestown
240,906

Piedmont Center 9-11
Buckhead
Kaiser Permanente
PC Management Co.
212,105

Two Alliance
Buckhead
Novelis
Tishman Speyer
100,000

Termius 200
Buckhead
Greenberg Traurig
Cousins
90,000

1001 Perimeter Summit
North Central
Cox communication
Seven Oaks
115,000

For tenants looking for space and who can commit to long term leases it is the best of times.  Concessions packages unheard of 24 months ago are the norm now. Most mid-to-large size tenants are not only negotiating tough deals for Landlords but they are also negotiating tough deals with the Landlords lenders.  Forward commitment of TI and leasing commissions, subordinated non-disturbance agreements and rights to cancel typically asked by the Landlords to the lenders are now being required by the tenants from the lenders.  For landlords and lenders it is the worst of times.

So what does the next 12 months look like?

Much the same but tenants beware the pendulum will change…here are the reasons why:

1.  For the first time in 30 years there are no speculative office buildings (>100,000sf) under construction in the metro area and none scheduled for construction to begin in the next 12 months.
2. The new health care plan proposes to require or subsidize over 32,000,000 Americans with health insurance.  Who is going to issue these policies?  It’s going to be issued by the current health insurance carriers and drive demand for office space. By some estimates, with this increase these insurance companies could need more space to the tune of about 1.9 foot of office space per policy, which totals an astounding 64,000,000 square feet nationwide.  While this growth would be felt across the U.S., Atlanta will see its fair share of this expansion.
3. The economy will get better over time and with increased confidence (and income) tenants will be expanding -- something very few have done over the past 2 years.
4. Atlanta is still one of the top 10 cities to live in and the region will continue to lure corporate tenants like NCR and Newell Rubbermaid.

So if you’re a tenant in today’s market enjoy these best of times (and use it to help your business) for surely within the next 24 months these best of times will be a faded memory.

By Alan Joel, Principal of Joel & Granot Commercial Real Estate/CORFAC International, based in Atlanta. Mr. Joel is also President of the Atlanta Commercial Board of Realtors.