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News release

Atlanta

Commercial Real Estate Pricing Trends Suggest Market Bottoming Out, Says Atlanta Urban Skyline Review by Jones Lang LaSalle


ATLANTA, February 2, 2010 - Atlanta commercial real estate market conditions are slowly shifting back toward “balance” says Jones Lang LaSalle’s Urban Atlanta Skyline Review.  The report released today analyzes 53 buildings in Downtown, Midtown and Buckhead, and indicates the different perspectives held by Atlanta’s landlords, tenants and investors in the current market.
 
The report found that last year the metro marketplace suffered negative absorption of nearly 1.8 million square feet of office space – nearly 1.5 percent of the market -- often attributed to corporate consolidations, downsizing and right-sizing.  Urban Atlanta returned 478,000 square feet to the marketplace, accounting for less than 1 percent of its market.
 
“Additional increases in vacancy are expected in 2010, but leasing activity in the last quarter of 2009 suggests that momentum and confidence may be returning,” said Atlanta Market Director, Clark Gore.  “Although urban leasing activity was down significantly in the fourth quarter, the market reported an increase in new leasing activity rather than renewals.  This is akin to consumer confidence indexes in the general economy – tenants see a more stable market and have more confidence in leasing decisions.”
 
While vacancy rates are high, there are well-known firms actively seeking 3.6 million square feet of office space. Demand for office space should slowly rise throughout 2010 as occupiers attempt to capitalize on current tenant-favorable conditions.
 

Tenants Rule – For Now
 
Average rental rates in urban Atlanta peaked at $24.10 per square foot in early 2008.  Since then, asking prices have dropped almost 6.6 percent to $22.51 per square foot.  Average rates are $25.15 per square foot in Buckhead, $23 per square foot in Midtown, and $19.29 per square foot in Downtown.  Rates are expected to decline even further in coming months, but the rates at which they have fallen have slowed considerably.
 
An increase in leasing momentum and overall confidence should show modest rental-rate growth by late 2010 and early 2011.  Active requirements – space needed by specific occupiers – were at an all-time high at the end of 2009.  Prospective tenants are actively seeking more than 3.6 million square feet of office space.  As those deals are executed, other occupiers will move quickly to take advantage of very favorable terms before they disappear.  And as this occurs, the market will gradually shift to more balanced conditions.
 
Some of the larger office space seekers in the market:  Alston & Bird, 400,000 square feet; Kilpatrick Stockton, 240,000 square feet; Greenburg Taurig, 75,000 square feet; McGuire Woods, 60,000 square feet and Northwestern Mutual, 50,000 square feet.
 
Landlords Try to Weather the Storm, Look to the Horizon

Urban landlords are struggling to attract new tenants while holding onto current tenants.  In addition to the competition among existing buildings, they face competition from the newly constructed towers in Midtown and Buckhead that will open in 2010.  New buildings such as Phipps Tower and 3630 Peachtree in Buckhead, and 12th & Midtown will lure tenants with lucrative allowance packages, lower operating costs and rent abatement.
 
All landlords, old and new, will be eagerly awaiting increased demand and the return of their bargaining power in 2010, and they hope for more in 2011.
 
Investors – Foreclosures May Create Some Opportunity, but Debt Still Scarce
 
With a sizable gap remaining between buyer and seller expectations and debt difficult or impossible to acquire, investment sales activity will likely remain stagnant in the coming months.  Stability in market fundamentals and rising occupancy rates must occur before many investors drop their “wait and see” attitude and move off the sidelines and into the game.
 
Recent warnings about a possible commercial real estate loan bubble that could burst as billions of dollars of debt mature in 2010 and 2011 do not encourage investors to take action.  With many banks and other lenders in trouble, investors are more likely to renegotiate and restructure loans rather than foreclose and suffer tremendous write-downs. The result could be fewer foreclosures and fewer bargain-priced assets on the market.
 

“Investment activity is likely to remain slow in Atlanta until market fundamentals show sustained growth, and confidence returns to the commercial real estate market and the overall economy,” said Lanie Rea, Research Manager, Jones Lang LaSalle, Atlanta.  “So, while the commercial real estate market may have bottomed in urban Atlanta, all indications point to a slow and cautious ride back to the top.”
 
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 2008 global revenue of $2.7 billion, Jones Lang LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offices.  The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.4 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 more than $37 billion of assets under management. For further information, please visit our Web site, www.joneslanglasalle.com.
 
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