OFFICE MARKET ASSESSMENT
The Atlanta office market contracted with negative 450k SF of direct net absorption during the first quarter of 2022, after showing signs of a recovery over the prior two quarters with solid absorption gains totaling 1.2M SF during the second half of 2021. Even though the trailing 12-months absorption total has turned positive, the market-wide direct vacancy rate has climbed 90 bps to 20.3% over the past year reaching its highest level since the late 1980s largely due to an influx of construction deliveries totaling 3.2 MSF over the past year.
The Class A sector registered 235k SF of occupancy losses in Q1 — breaking a streak of three straight quarters of absorption gains totaling 915k SF over the span — but the trailing 12-months total managed to turn positive for the first time in over a year due to an upswing in leasing activity. Class B properties also posted 200k SF of red ink in Q1 but has shown signs of improvement with only 96k SF of occupancy losses over the prior 12 months.
Sublease availability jumped by 822k SF to an all-time high of 6.1M SF in Q1, reversing a trend of two consecutive quarterly declines. Suburban submarkets currently account for 70% of the sublease inventory with most of the space located in North Fulton, Central Perimeter and Northwest Atlanta.
Leasing activity accelerated to 9.4M SF over the trailing 12 months, up 29.5% since hitting its pandemic low nearly a year ago. Leasing volume totaled 2.4M SF in Q1, up 24.2% compared to a year ago, but remains 29.9% below the 2017-19 pre-pandemic quarterly average. Tour activity picked up as occupiers re-evaluate their future space needs and more willing to execute on long-term leasing decisions previously placed on hold due to the pandemic.
New construction remains robust with 4.5M SF underway, which is currently 31% pre-leased. Approximately 3.6M SF of new product is scheduled to deliver by year-end, which will likely push vacancy levels higher until demand begins to outpace supply during the latter part of 2022.
Developers delivered two projects totaling 590k SF during the first quarter of 2022, with the largest completion involving the redevelopment of the Northlake Mall into offices partially occupied by Emory Healthcare.
Rent growth has significantly slowed since the pandemic emerged two years ago but rental rates have begun to trend upwards by 3.6% year-over-year, largely due to the influx of high-quality new construction delivering to the market on a speculative basis. Rising construction costs and sustained demand for quality space are expected to push rents even higher in the year ahead.
Despite the slow start to 2022, Atlanta’s office market finds itself in an improved position as many companies are returning to the office and several large upcoming corporate expansions and relocations recently announced should continue to bolster Atlanta’s economic recovery.
The long-term outlook remains positive as metro Atlanta is expected to outperform and recover faster than other major markets as pent-up activity and inbound corporate relocations should translate to stronger leasing momentum and help generate more occupancy in 2022.