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Strongest Quarter in 20 Years Overshadowed by Pandemic

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Overshadowed by the current COVID-19 pandemic affecting the world, Atlanta's office market experienced its highest quarterly absorption since the end of 2000.

Key Takeaways

  • Atlanta's office market absorbed just under 2 million square feet in the first quarter thanks to large, single-tenant occupancies.
  • State Farm, Anthem and Children's Healthcare of Atlanta each moved into their newly delivered office buildings this quarter, accounting for over 60% of the total net absorption.
  • With absorption levels and delivered square feet closely balanced, the overall vacancy rate remained mostly level from last quarter.
  • In addition to single-tenant deliveries, an additional 770,000 square feet of office product was added this quarter.
  • The average rental rate increased for its 27th consecutive quarter. Both Class A & Class B rents are up 7% year-over-year.
  • A strong start to the year was expected given the sizeable occupancies anticipated in the first quarter. Next quarter shows promise for having respectable absorption levels as well; however, the current economic plight brought on by the COVID-19 global pandemic has become a significant hindrance to normal business activity, and this will affect projected occupancies in the coming quarters.

Atlanta Office Market

Overshadowed by the current COVID-19 pandemic affecting the world, Atlanta's office market experienced its highest quarterly absorption since the end of 2000. Just under 2 million square feet of occupancy gains occurred in the first quarter, surpassing all of 2019's annual total. The activity in Q1 was led by large, single-tenant move-ins including State Farm's 670,000 square-foot occupancy in the second phase tower at its Central Perimeter campus.

Other notable occupancies include Anthem moving into its newly delivered 352,000 square-foot office building in Midtown, and Children's Healthcare of Atlanta occupying the first phase building of 348,000 square-foot at its support campus in the Northlake submarket.

Outlook

How quickly times have changed; and over the course of just one quarter. Heading into 2020, Atlanta's office market was expected to see continued positive momentum thanks to strong leasing activity in the prior year. On the absorption side, this transpired with the metro area experiencing its strongest quarter of occupancy gains in almost 20 years. Specific to leasing activity, the first part of the quarter was solid with a number of large leases and expansions completed.

And then the economy basically shut down. COVID-19 has proven to affect all aspects of global commerce, leaving no metro area in the nation unscathed. With business activity having come to an abupt halt, the office market in Atlanta is feeling the effects.

Leasing has already slowed as uncertainty has taken hold. For the short-term this will likely be the status quo. Until the COVID-19 pandemic has come under control, only then will the true impact to Atlanta's economy be understood. The office market is not expected to be the most affected commercial real estate sector here, but pains will be universal.


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Strongest Quarter in 20 Years Overshadowed by Pandemic

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Drew Levine

Senior Vice President, Principal

Atlanta

I am a Senior Vice President in the Occupier Services Group, a Colliers group that exclusively represents tenants. I have successfully advised startups, high-growth, and established companies since 2011. My team delivers customized services on local, national, and global levels that allow companies to make well-informed, profit driven real estate decisions. I have been involved in a wide range of transactions, from small acquisitions for startup companies to campus projects for Fortune 500 companies. Our work has included relocation and expansion projects, consolidations and dispositions, headquarter planning, lease terminations and complete portfolio planning strategies for hundreds of leading technology, professional services, and manufacturing companies. We strive to deliver real estate business solutions that: add measurable value, reduce costs, decrease business operating risks, improve workplace performance, expand flexibility, and increase overall profitability.

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