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BTB Exclusive - Atlanta's commercial real estate market

by Bobby L. Hickman

February 29, 2008

Atlanta's corporate real estate market continues to experience slower growth but the long-term prospects are excellent, according to local executives with Jones Lange LaSalle.

"The slowing economic impacts the office market and we've already seen it in the condominium market," David Demarest, a managing director for Jones Lange LaSalle said this week. "We're also seeing overbuilding in certain sub-markets." Overbuilding is not good for investors but it is good for tenants, Demarest added, as it contributes to downward trends in rental rates.

The comments came as the real estate services firm rolled out its first Skyline Review for Atlanta's in-town markets. Managing Director Rob Metcalf said the study focuses on three markets – downtown, Midtown and Buckhead. The company plans another Skyline Review for suburban markets this summer. Skyline Review is a signature Jones Lang LaSalle product which periodically reviews the corporate market in such cities as New York, San Francisco and Washington, D.C.

Metcalf said the challenges are different in each sub-market, but the markets also share a number of characteristics. Demarest said the challenges common to all three areas include traffic congestion, a slowdown in condo construction and the impact of Georgia's water crisis.

Demarest noted that as recently as 2002, there was a common perception that the downtown sub-market would continue evolving towards more government buildings, an expansion of Georgia State and further hospitality sites, while "the corporate office sector would be further marginalized in the future. Today it's become quite diversified." With an office market recovery complementing the expected sector growth, he added, "We're bullish on downtown."

Midtown faces some short-term challenges while large infrastructure projects continue, such as the Midtown Mile mixed use development and traffic improvements in the Techwood corridor. "There's also some question of whether Midtown is overbuilt," Demarest added.

While Midtown and Buckhead share some common themes, he continued, there is little disagreement that the Buckhead office market is being overbuilt. Another two million square feet of space is coming online and early lease rates are low. "Downward pressure on rental rates is a definite cause for concern," Demarest said.

Overall, Atlanta's commercial markets "face some short-term issues such as overbuilding," Demarest said. "But long-term, the future for urban markets has never been brighter. Ten to 15 years ago, urban markets were arguably in decline. But that's not the case in Atlanta."

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