Atlanta’s office leasing market cooled significantly in the third quarter, marking the slowest pace since the start of 2023. Renewals dominated activity, accounting for six of the top ten leases signed. Companies chose to stay put rather than move as construction costs rose and no major new office buildings entered the market. The data shows a clear shift in tenant behavior across the metro area.
Renewals jumped nearly 25% compared to the previous quarter, according to Cushman & Wakefield. Tenants renewed more than 714,000 square feet, which represents nearly 78% of the total leasing volume. This high rate of renewal highlights a reluctance among businesses to relocate. Jodi Selvey, a vice chair at Colliers, noted that moving remains prohibitively expensive. She explained that rates in top-tier buildings have risen sharply, making a switch less attractive.
Materials used in construction have also become more costly. Prices for these items increased by over 13% compared to last year. Metals like aluminum and copper saw costs climb by more than 40%. Selvey argued that these prices exceed what landlords offer in build-out allowances. Tenants often face cash expenses if they move to a new location and demand similar amenities. Cedric Matheny of T. Dallas Smith & Co. added that many deals signed during the pandemic are now coming up for renewal. He said waiting until the last minute to consider options makes staying put the most logical choice.
Related Post: Inversiones Ortega acquires Seville office building from Helvetia
The lack of new office supply gives landlords an edge in negotiations. Jeff Pollock of Pollock Commercial observed that tenant activity has been busy, but renewals outnumbered new leases by a two-to-one ratio. Because there are fewer places to move, existing landlords have increased leverage. Rents in the area climbed 3.8% year-over-year to $35.22 per square foot. Class-A office space saw a smaller increase of 3.2% to nearly $38 per square foot. Trophy properties are approaching $70 per square foot.
Developers reported zero significant office projects underway in Metro Atlanta during the third quarter. This marks the first time in 15 years that the market has seen such a pause. The last major project, the 60-story 1072 West Peachtree tower with 224,000 square feet of office space, delivered earlier this year. This shortage of new inventory forces companies to compete for available space in older buildings.
Savills data indicates that companies absorbed 6.2 million square feet of office space through September. A majority of this activity focused on Class-A towers. The overall vacancy rate dropped by 140 basis points to 26%. Sublease availability decreased by 1.2 million square feet to just over 5 million square feet. However, this figure includes a large sublease listed by Comcast. The company placed 250,000 square feet of space at One Ballpark in The Battery Atlanta on the market.
