2020 Atlanta office
Atlanta's fundamentals ended 2019 strong and are forecasted to maintain a healthy balance throughout 2020
Due in large part to restraint by developers (supply) and brisk leasing activity by occupiers (demand), Atlanta’s fundamentals ended the year strong and are forecasted to maintain a healthy balance throughout 2020. Our forward-looking guidance is for the investor community to proceed with guarded optimism. However, Atlanta is globally connected and there remain significant points of weakness that could have a meaningful impact on the local office market performance.
The traditional supply indicators market participants reference at this point in the cycle to reliably point to potential risk are sound and suggest a limited threat to most investors of Atlanta office assets. Local market Trophy vacancy rates, for example, are at their lowest point since the early 2000s, dipping to 14.7 percent in the fourth quarter of 2019. The amount of new construction as a percent of total inventory is among the lowest relative to other Sun Belt markets, sitting at just 3.5 percent. At the end of 2019, metro Atlanta had 25 proposed properties in the development pipeline, which is quite modest, particularly relative to meteoric asking rate growth over recent years. Aggregate sublease availability, a bellwether metric which can tip participants off to impending rocky market conditions, remains at historic lows across all class and submarket segments, representing just 2.5 percent of the total market. Relatively speaking, Atlanta’s office supply fundamentals are in check.
Key local market demand indicators are sound as well. Total net absorption, a reliable proxy for occupier interest, has been positive for eight years straight following the recession, reaching 1.1 million square feet in 2019. Aggregate metrics of known occupiers currently in the market for space are substantial and point to interest by a diverse industry base. Leasing activity over the long term has suggested similar strength and reflects a variety of users in growth-mode. In our estimation, this variety generally benefits investors as it minimizes over-exposure to any one industry in particular. That said, the TAMI and FIRE sectors were especially active in 2019 and are expected to continue contributing to Atlanta’s market for office space.