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News release

ATLANTA, GA

Weak Demand Continues to Hamper Recovery in Metro Atlanta’s Suburban Office Markets

Jones Lang LaSalle’s Atlanta Suburban Landscape Review shows a positive shift in occupancy and rental rates in Northlake, while struggles continue in Northeast and Northwest submarkets.


ATLANTA, GA, Sept. 30, 2011 — Vacancy rates in Atlanta’s suburbs have been pushed to record levels in some suburban office sectors and ongoing flat demand amid the weak job recovery is expected to hinder both occupancy and rental growth in the coming quarters, according Jones Lang LaSalle’s 2011 Suburban Landscape Review.

While metro Atlanta’s Northwest, Northeast and Northlake office submarkets struggle to rebound from the recession, the overall flat performance was offset partly by occupancy and rental gains in Northlake’s mid-rise sector in second-quarter 2011.

“Conditions in the suburban office markets reflect metro Atlanta’s slow recovery from the recession, as vacancy levels remain stubbornly high amid tenant move-outs and a lack of job growth,” said Atlanta Market Director Clark Gore. “At the same time, landlords of Class-A space are having greater success attracting tenants as we continue to see a flight to quality office space.”

Northwest Market Overview
At mid-year 2011, the Northwest office submarket faltered as the overall second-quarter absorption of negative 84,000 square feet pushed the vacancy rate for the entire submarket up to 21.5 percent. The vacancy rate for low-rise buildings has soared to a record high of 27.2 percent, which represents a sharp 60 percent increase since late 2007.

Lacking sustained demand, pricing has fluctuated around the $19.00 mark since early last year and the most recent direct average rental rate was $18.81 per square foot. However, the first-tier buildings have gained a demand foothold in recent quarters and only 15.8 percent of the premium inventory sits empty.

In a trend also witnessed in other Atlanta submarkets, renewals and inter-submarket moves have generated the bulk of recent activity rather than move-ins by new tenants. In addition, Jones Lang LaSalle’s analysis of the tenant pipeline indicates that more of the same flat activity is likely on the horizon for this submarket.

The occupancy climate has the potential to deteriorate further, as two significant occupiers – IBM and Manhattan Associates – have a combined 320,000 square feet up for renewal. A submarket move-out by either of these tenants would leave large holes to backfill in the Northwest submarket, further hampering demand and rental rate growth. 

Northeast Market Overview
In the Northeast submarket, negative absorption has been recorded in nearly every quarter since the start of the recession (including 11,000 square feet of occupancy losses in the second quarter of 2011), pushing vacancy rates to record levels of 24.4 percent overall and 30.7 percent in the low-rise sector.

The poor occupancy fundamentals have impacted pricing, and the current rental rate of $16.67 per square foot is the lowest of any submarket in metro Atlanta.

Even though new construction has been at a standstill since 2009, the overall trend of firms shedding space has prevented occupancy levels from rebounding. However, the market was buoyed in mid-September by Primerica’s decision to consolidate its Atlanta-area offices into a 345,000-square-foot build-to-suit headquarters facility in Duluth, which the company will occupy in 2013.

Northlake Market Overview
Amid the overall lackluster performance in the other suburban markets, Northlake has registered modest occupancy and rental gains. Following a 24-month demand slide in which tenants shed 500,000 square feet of space, Northlake saw 43,000 square feet of absorption in second-quarter 2011.

In addition, Northlake boasts the lowest vacancy rate of any major suburban submarket in metro Atlanta – 16.7 percent. While the vacancy rate is elevated compared to the pre-recession range of 12 to 13 percent, it is comparatively low considering current economic conditions.

Thanks to improvements in occupancy levels, pricing in Northlake is nearly in line with rates seen before the real estate bubble burst. The direct average rental rate increased by almost $0.50 during the second quarter to $17.84 per square foot.

Featuring written analysis and detail-rich graphics, the 2011 Suburban Landscape Review has been made available in an online format as part of Jones Lang LaSalle’s commitment to sustainable initiatives. This year’s review follows Jones Lang LaSalle’s 2010 Suburban Landscape Review, which focused on the Central Perimeter and North Fulton submarkets.

About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2010 global revenue of more than $2.9 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices.  The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.8 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $45.3 billion of assets under management. For further information, please visit our website, www.joneslanglasalle.com.