Atlanta Commercial Real Estate Market Trends in 2017
For our money, Atlanta is one of the great American cities. Of course, we’re a little bit biased. We’ve been providing commercial carpet cleaning services in Atlanta since 2013. So this is a city we know and love.
But we’re not the only ones buzzing about Atlanta these days:
- U.S. News & World Report ranked Atlanta as one of the top 50 American cities to live. The profile of Atlanta in U.S. News notes: “Among the nation’s fastest-growing metro areas, the Georgia capital is attracting newcomers from around the country, and people are looking to this part of the country for culture and commerce like never before.”
- Atlanta makes the list of 2017’s top 10 cities for an active lifestyle. The WalletHub ranking reveals that Atlanta is tied for first in the nation in most fitness centers per capita, and ranks at the head of the pack nationally for swimming pools and tennis courts.
- Atlanta named one of the top five best cities for millennials. Money.com says that Atlanta offers fun activities, great nightlife, a lower cost of living compared to other big cities, and strong employment opportunities. They also note that millennials comprise 26.2% of Atlanta’s population.
All the accolades mentioned above and more—including a Super Bowl-caliber NFL team in the Falcons—make Atlanta a desirable destination for both individuals and businesses. That growth potential is something that’s reflected in the city’s commercial real estate market.
3 Things to Know About Atlanta’s Commercial Real Estate Market
Here are some key takeaways from Collier’s International on the current state of the Atlanta commercial real estate market:
1. Vacancies Are Down, Demand Is Up
According to Collier’s, the number of vacant offices in Atlanta declined steadily in 2016—leading to the lowest vacancy rate (13.7%) the Atlanta commercial market has seen since 2007.
That’s a pretty impressive stat. But even more impressive is the fact that Class A vacancy is the lowest it’s been in Atlanta since 2001. The biggest drops in Class A office vacancies came from the Midtown (3.2%) and Cumberland/Galleria (2.5%) areas (more on those areas below).
Given the increasing demand for office space in Atlanta, it’s surprising we’re not seeing more new construction. Collier’s notes that just more than 1 million square feet of new office space were added in 2016—much of it coming from the first phase of State Farm’s new offices in Central Perimeter.
That’s the opposite of what we’re seeing on the industrial side of things. Atlanta delivered 22.5 million square feet of new industrial construction last year—the most the area has seen since 2006, and the most industrial space added in the nation in 2016.
2. Midtown Is Booming
Of all the areas in Atlanta, Midtown experienced the most office occupancy growth in 2016. NCR, Honeywell, Equifax and WeWork all grabbed big pieces of office space in Midtown last year.
It’s easy to understand why Midtown Atlanta is an in-demand locale for businesses. Atlanta’s “heart of the arts” has theaters, museums, great shopping, 30 acres of beautiful green space at the Botanical Gardens, and great restaurants like The Varsity.
Much of the demand for Midtown office space is coming from the technology sector and millennial startups. Collier’s notes that Midtown “is emerging as Atlanta’s top tier destination for office tenants to locate, and quickly approaching Buckhead’s title as having the highest rental rates in the city”.
The commercial real estate growth and demand in Midtown is expected to continue for at least the foreseeable future.
A few other areas of note when it comes to the Atlanta commercial market:
- Central Perimeter is struggling a little bit after being a huge source of commercial real estate occupancy for years. Collier’s reports the area lost 300,000 square feet of tenant occupancy in 2016, with companies like WorldPay and AECOM relocating to other areas of the city.
- Cumberland/Galleria saw a big jump in occupied office space in 2016. This area also had the highest number of commercial office construction projects break ground last year.
- North Fulton office occupancy was down due to office consolidations from Verizon and AT&T.
3. Rental Rates Are Increasing
With continuing demand and only a moderate amount of new office construction, commercial rental rates in Atlanta have been steadily on the rise. Rent for office space in Atlanta increased for the fifth straight year in 2016.
The average rent increased by 7% last year—a pretty significant increase. Class A rent in Downtown Atlanta increased the most this year, rising by 17%. Meanwhile, Class B rental rates in Central Perimeter increased 12.4% over the previous year.
With some new, higher-priced office spaces expected to hit the market in 2017, average commercial office space rental rates in Atlanta will only continue going up.
On the industrial side, rental rates are also continuing to climb. Overall rates increased 4.5%, while warehouse rents rose 5.6% in 2016. With all the new industrial construction and occupancy already on the rise for 2017, you can expect industrial rental rates to keep climbing in the next few years.
Atlanta Commercial Real Estate Market Expected to Remain Solid
The key words to remember with the Atlanta commercial real estate market right now are “steady” and “potential”. With employment expected to grow at 2016 levels at least for the next two years, the commercial market should remain healthy moving into the future—offering plenty of potential opportunities for businesses and investors.
Atlanta has a solid commercial market and a solid business community, and that doesn’t look to be changing anytime soon.
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