LOCAL REAL ESTATE veteran Craig Flanagan will be covering some new Atlanta-area ground this year, thanks to his recent move to Duke Realty Corp. Flanagan is now vice president of office leasing for the Indianapolis-based real estate investment trust's local operation.
Flanagan's focus has been firmly fixed on properties located inside Atlanta's I-285 perimeter highway since getting into the business in 1985 as a leasing agent for the 2.3-million-square-foot Peachtree Center. And immediately prior to joining Duke in December 2006, he was managing director of this mixed-use icon, overseeing its leasing, marketing and management through numerous cycles of the periodically dicey downtown office market.
In between these two stints at Peachtree Center, Flanagan's gigs included leasing space at Buckhead's Atlanta Financial Center for Ares, the former real estate management arm of Mutual of New York and working the downtown office market for CB Commercial, now CB Richard Ellis.
Duke Realty's Atlanta office portfolio, meanwhile, has a decidedly suburban profile, with nearly all of its 3-million-square-foot buildings located outside I-285. Flanagan's new beat includes several Duke projects in Gwinnett County, including Crestwood Pointe, Hillside at Huntcrest and the Business Park at Sugarloaf. According to Flanagan, venturing outside the perimeter "is a welcome and exciting opportunity that's certainly going to help round out my real estate experience."
Construction costs comedown?
The cost of construction materials may not be going down, but the pace of price increases is apparently slowing, which is good news for developers and project owners. "Things have definitely stabilized in the building products marketplace," says Jeff George, vice president and general manager of the Atlanta commercial group of Dallas-based general contractor Centex Construction.
The past 18 months have seen spikes of varying magnitude in the cost of concrete, steel and materials used in electrical and plumbing applications, accompanied by jumps of as much as 15 to 20 percent in petroleum-based construction materials like asphalt, according to George.
"Overall, those increases are slowing down to a more manageable three-to-six-percent per annum or so," George says. "Most things are moving up in the three percent range or below, but fabricating steel is still spiking."
Meanwhile, the slowdown in the housing market is having a positive impact on wood and drywall prices, "which are definitely seeing some softening," he adds. "I also expect prices for masonry materials to start coming down."
This year's increase in overall materials costs looks like it will run about half of last year's 10 percent to15 percent rate, says Dan Cash, senior vice president in the Atlanta office of global architectural services firm HOK.
"While the construction materials cost-increase picture has improved, owners still need to be sure they make provisions for potential cost increases in the future," Cash adds. "Owners coming to the market with project budgets that were developed a couple of years ago need to throw them out and redo them, making sure they are using today's numbers – and including a contingency in their budgets to cover escalations."
Atlanta-area forecasts
From the research operations of various brokerage houses: After ending 2006 at 19.3 percent vacant, with more than 2.6 million square feet under construction, look for the 126.1-million-square-foot metro office market to continue to expand in 2007, "led primarily by organic growth on the part of existing tenants," says CB Richard Ellis' Senior Research Coordinator Keith Pierce. "As Atlanta businesses continue to grow, and new office development attracts space users, 2007 should bring continued growth in absorption, with rental rates rising further, and a likely leveling-off of new construction as the product currently underway is completed."
Retail-wise, demographic shifts are creating retail opportunities and challenges in markets throughout the nation, reports Peter D. Kozel, executive managing director of Research and Real Estate Strategies for New York-based Newmark Knight Frank. In the recently released report " Shifting U.S. Demographics Create Retail Opportunities and Challenges," Kozel indicates that over the next five years, "Atlanta will see the emergence of retail categories that hardly existed in this metro 10 years ago." He adds, "The senior population will emerge as a critical component of the consuming public, and Asian and Hispanic populations will reach a critical mass in terms of numbers and purchasing power."
In the industrial department, look for vacancy to hover around the 11.5 percent rate, absorption in the 6 million to 8 million-square-foot range, and 8 million square feet of new space to be delivered in Atlanta next year, according to Colliers Spectrum Cauble Director of Research Scott Amoson. "The transportation industry, including port, rail and trucking activities, will continue to do well," he says, "which could lead to growth of logistics companies in and around the airport and metro Atlanta's multi-modal facilities next year."
The two unknowns in the market are the ultimate disposition of the now-idled Ford plant in Hapeville and General Motors plant in Doraville. "My guess is Ford's plant will be purchased for airport expansion or new industrial development," Amoson says. "GM's plant is another story, since the market could support a mixed-use redevelopment, including retail, multi-family or office space."