There have been major changes in the Atlanta and national commercial office market. Up until late last year, Atlanta saw a major leasing recovery mostly due to our huge tech sector (with companies like Google, Facebook, Microsoft, IBM), however with layoffs and paused expansions, this recovery has fizzled and office vacancies grow above 26% in the metro area (source: CBRE and Savills).
Interest rates have been aggressively hiked to combat inflation with no clear signs of rates softening for the next year to eighteen months. Major companies, as well as small business tenants, are reigning in their budgets, cost cutting due to the questionable economic outlook and softening of consumer spending.
Per CoStar, an estimated 10% of Atlanta office lendees have their loan cycles maturing this year, as most commercial loans hold either three or fi
ve year terms, with some (estimated 6%) already defaulting (see Tower Place). The work from home trend seems to be here to stay, there has been much resistance for workers and the back-to-the-office push/mandates, instead opting for a hybrid work schedule, severely cutting demand for office space. Many corporate landlords, like BlackRock, are no longer making payments on their offices.
While it may seem very dramatic that office vacancy rates are much higher than recent years, it is not the end of the world. I believe we will continue to see new projects, like Portman Holdings’ Ponce & Ponce above, pivoting their office plans with a higher focus on residential moving forward. A new adage I’ve heard is, “stay alive ’til 2025” as $1.5T of national commercial real estate debt is maturing by then.
Moving forward, I really hope to see more repurposing for our already existing older office stock as well to accommodate either more residential needs or other interesting and fun uses (restaurants, health care, hotels, and other creative uses) to help breathe new life into our market in our ever changing city.
As always, I’d love to hear your thoughts and thank you for reading