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Atlanta
Atlanta
Rising office construction edges up vacancy in suburban 2.9 million sq. ft. Construction:
Atlanta. Employment growth above the national average has Office completions reach the
will be completed
underpinned healthy office demand the past five years, plummeting highest level since 2009. Last
vacancy nearly 400 basis points since 2011. The declining rate year, more than 2.7 million
has generated an uptick in construction as tenants seek quality square feet of space was
space and deliveries may peak this year. The elevated pace of delivered metrowide.
completions has begun to weigh on metrowide vacancy, primarily
in the suburbs, which received the bulk of space during the past 40 basis point Vacancy:
two years. While suburban vacancy has lifted, strong demand in Net absorption of 1.5 million
increase in vacancy
the central business district has slashed vacancy, particularly in square feet will not outpace
Downtown. No new office space has been built in the area during completions, lifting vacancy to
the past four years and strong demand has plummeted vacancy 16.5 percent. In 2017, vacancy
and generated above-metro-average rent gains. rose 80 basis points.
Deliveries shift to the central business district. While 3.4% increase Rents:
completions remain elevated in the suburbs, construction Strong rent growth in several
in asking rents
begins to shift to CBD areas. More than 2 million square feet is select submarkets aids in an
underway in Midtown and Downtown Atlanta, with completion overall 3.4 percent increase to
dates scheduled through 2019. Much of the deliveries are build- the average asking rent, reaching
to-suit including 762,000 square feet for the NCR Corporation $24.35 per square foot this year.
Headquartes. Metrowide, roughly 1 million square feet is
speculative construction, less than 1 percent of total inventory.
Investment Trends
Local Office Yield Trends • Corporate growth continues to drive job creation in Atlanta,
Office Cap Rate 10-Year Treasury Rate keeping investors interested in the metro’s office assets. Out-
of-state buyers are increasingly competing with local investors,
12% with many targeting properties that have higher first-year returns
than those available in their home markets. Metrowide, office
9% properties trade with average returns in the mid-7 percent band.
Rate
6%
Non-Farm Office-Using
1.6% increase in total employment Y-O-Y
Year-over-Year Change
* Forecast
Office Research | Market Report
DEMOGRAPHIC HIGHLIGHTS
2018 FORECAST JOB GROWTH *POPULATION AGE 20-34 **SQ. FT. PER OFFICE WORKER
31% Urban
2018 OFFICE-USING JOB GROWTH POPULATION OF AGE 25+ U.S. Average 32%
*PERCENT WITH BACHELOR DEGREE+
Metro 0.5% 69% Suburban
U.S. Average 2.2% Metro 36% U.S. Average 68%
36%
Central Perimeter 19.3% 70 $27.62 1.9%
18%
West Atlanta 19.7% 50 $17.46 -14.6%
0%
Northeast Atlanta 21.5% 60 $17.57 1.4%
-18%
Overall Metro 16.3% 50 $24.08 5.2%
-36%
08 09 10 11 12 13 14 15 16 17 18*
CAPITAL MARKETS
• Lending costs rise alongside Fed rate increase. As the Fed
Office Mortgage Originations continues to lift interest rates, lenders are increasingly tightening
By Lender margins in order to compete for loan demand. Despite these
100% efforts, borrowing costs remain on an upward trajectory, which may
prompt investors to seek higher cap rates or pursue greater returns
Percent of Dollar Volume
75% Nat'l Bank/Int'l Bank in secondary markets. However, robust economic growth and
CMBS rising net operating incomes are keeping selling prices elevated,
Financial/Insurance which may widen an expectation gap as property performance and
50%
Reg'l/Local Bank
Pvt/Other demand trends remain positive.
25%
• Lending continues to be highly competitive. While the Fed
has committed to tightening policy, global markets and foreign
0%
12 13 14 15 16 17
central banks are keeping pressure down on long-term interest
rates, restraining the 10-year Treasury to the 3 percent range.
Banks, commercial mortgage-backed securities (CMBS) and life
Include sales $2.5 million and greater insurance companies are providing debt for office assets, with
Sources: CoStar Group, Inc.; Real Capital Analytics leverage at banks typically capped at 65 percent. Meanwhile, life
insurance companies will typically provide capital with leverage
between 60 and 65 percent, with CMBS offering up to 70 percent.
Lender spreads have narrowed in recent months, while 10-year
loan structures will typically range between 4.25 and 5.25 percent,
depending on tenancy, location, sponsorship and loan-to-value
ratio. Minimum debt service coverage required is 1.3 times expected
asset revenues, supporting debt yields of 8.5 percent. The national
economy should grow strong and office demand should support a
10-basis-point decline in vacancy to 13.7 percent nationally.
National Office and Industrial Properties Group
Alan L. Pontius
Senior Vice President, National Director | Specialty Divisions Atlanta Office:
Tel: (415) 963-3000 | al.pontius@marcusmillichap.com
Michael Fasano First Vice President/Regional Manager
1100 Abernathy Road N.E., Bldg. 500, Suite 600
Prepared and edited by Atlanta, GA 30328
Catherine Zelkowski (678) 808-2700 | michael.fasano@marcusmillichap.com
Research Analyst | Research Services
Price: $250
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no
representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment
growth is calculated based on the last month of the quarter/year. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. This is not intend-
ed to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered
as investment advice.
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; Moody’s Analytics; Real Capital Analytics; TWR/Dodge Pipeline;
U.S. Census Bureau