As 2007 opens, the new owners of a pair of downtown Atlanta office projects are busy rolling out
their respective strategies to lease the large amounts of vacant space they have on hand. A
landmark building, a strategic location and the ability to offer attractive deals are going to be
the major selling points for space at the 1.2 million-square-foot One Ninety One Peachtree Tower,
according to Cousins Properties Inc. President and CEO Tom Bell.
There's about 600,000 square feet available in the tower, which Cousins acquired last fall for the bargain price of $153 million, or approximately $127 per square foot. "It's a world-class building in a very convenient place, and we got it at a very good price," Bell says. "I think we can compete with pretty much anybody when it comes to economics – certainly other Class A buildings."
At press time, Cousins was in discussions with a couple dozen potential tenants, according to Bell, including three regional headquarters operations considering relocating to One Ninety One Peachtree Tower. Conversations also were underway with SunTrust Banks Inc., which is in the market for office space to house approximately 1,000 employees following the sale of its 26-story tower and accompanying buildings at 25 Park Place to Georgia State University.
The biggest challenge facing Cousins Properties in its leasing effort is getting people comfortable with downtown Atlanta, according to Bell. "Our research found that about 83 percent of people who work, live or regularly visit downtown think very highly of it, while some 80 percent of people who either go downtown infrequently – or never go – don't like it," he says. "Our job is to get people to come downtown and take a look."
Meanwhile, just a couple of blocks north, the new owner of Peachtree Center – Miami-based America's Capital Partners – has changes on tap for this 2.3-million-square-foot, mixed-use development, which currently has just under 1 million square feet of office space available.
First on the agenda is a physical clean-up of the buildings, says Jeff Keppen of CB Richard Ellis, who will be handling leasing for Peachtree Center in conjunction with CBRE First Vice President Chris Port. This work will be followed by "doing some neat things with lighting" to highlight the buildings at night. Longer-term plans call for reconfiguring the project's courtyard area to make it a more pedestrian-friendly gathering place, "almost like a Rockefeller Center at some point," adds Keppen.
The CBRE team's leasing strategy, meanwhile, will focus "on reintroducing this asset to the marketplace, where it's probably fallen off the radar screens of many in both the brokerage and user communities," according to Keppen. "A number of events are planned this year not only to get brokers and space users back down to Peachtree Center," he notes, "but also to show them the energy, access and amenity base that a downtown location offers."
Peachtree Center's smaller floor plans mean that leasing efforts focus on smaller space users, "which makes leasing a greater challenge," according to Mike Elting, executive managing director/Southeast area leader with Cushman & Wakefield of Georgia Inc. "But once you've leased a building like this, you're in a great position – no one large tenant can hurt you by moving out and you're better able to hold the line on pricing," he says.
And how about One Ninety One Peachtree Tower? "That's clearly one of the finest buildings in the city, and Cousins bought it at an opportunistic price," Elting says. "The only question left is how long it's going to take to fill up the building with tenants. One Ninety One Peachtree is eventually going to lease up and sell for a premium – and Cousins is going to make a whole lot of money."
The next big (retail) thing
Look for mixed-use urban infill projects to be major venues for growth in Atlanta's retail market in the coming year, according to Greg Maloney, president and CEO of Jones Lang LaSalle Retail, whose 35 million-square-foot/25-state national portfolio includes the retail array at Atlanta's Atlantic Station, the 138-acre, mega-mixed-use development near Midtown.
With a current mix that includes Dillard's, IKEA, Old Navy, Publix, Pier 1 Imports, Regal Cinemas 16 and a variety of specialty stores and restaurants, Atlantic Station's retail component is almost fully leased. "A spring 2007 opening is on tap for a Target store there," reports Maloney, "which is going to be gorgeous building – it won't look anything like a traditional Target."
Now that Atlantic Station has shown that retail combines well with multi-family and office uses in infill settings, there's more on the way in Atlanta and elsewhere, according to Maloney. "People from all parts of the country come through Atlantic Station and say ‘wow, this works,'" Maloney explains. "Retail development being a business of copycats, the top cities in the United States now all have one or two of these types of projects either on the drawing boards or in the works."
In Atlanta, an underserved, inside-the-I-285 perimeter market makes for fertile ground for retail as part of mixed-use development, according to Ray Uttenhove, executive vice president of Staubach Retail. But pulling off these projects successfully requires not only a lot of capital, but also a lot of expertise.
"There has to be retail synergy – the developer has to understand both the target customers and how different types of retailers can fit into a mixed-use project," Uttenhove says. "For example, many new projects planned rely upon deck parking, which doesn't allow customers to pull their cars close to where they shop, so it's up to the developer to understand what retailers this plan does – and doesn't – work for."
Retailers are working hard to fit their concepts into new types of mixed-use venues, according to Colliers Spectrum Cauble executive vice president Caldwell Zimmerman.
"In fact, many retailers are open to changing formats to meet this challenge, but it's still a struggle for a lot of them to put together the right square footage, parking and delivery configurations, as well as deal with all the other compatibility issues that face them in these projects," Zimmerman notes. "Nevertheless, they'll keep on trying because the demand for this kind of retail is definitely there – and it's getting stronger every time a new condo tower opens up with new residents or an office tower is built for new workers."
Predictions for 2007
According to the heads of various area commercial real estate brokerage operations, 2006 was a big year for announcements and construction starts on condominium and mixed-use projects in and around the Atlanta marketplace, according to CB Richard Ellis senior managing director Brett Hunsaker. "I'd like to see more corporate relocations in 2007 to keep the market growing," he says.
Meanwhile, the CB Richard Ellis/Trammell Crow merger will have a big impact on what everybody's brokerage firm is going to look like in 2007, according to Steve Dils, Grubb & Ellis executive vice president/managing director.
Along those same lines, Joe Terrell, Carter's executive vice president of transaction services, doesn't envision all the Trammell Crow people staying with CBRE. "Some may go with other local companies, while others may set up their own shops," he says. "Meanwhile, you're going to see Atlantic Station build on its strong momentum and a growing emphasis on mixed-use development."
"2007 will be the year in which we go from a tenant's to a landlord's market when it comes to office space," says Colliers Spectrum Cauble President Bob Mathews, "simply because the amount of available space, particularly large blocks, has begun to diminish."
"I think office rental rates are going to start increasing as the market continues to tighten," says Richard Bowers & Co. President Richard Bowers. He adds that based on recent activity in the metro area, including Cousins Properties' acquisition of One Ninety One Peachtree Tower and the American Cancer Society's headquarters move to Inforum, "downtown could very well be Atlanta's leading office submarket in terms of absorption in 2007."