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The Atlanta office market saw some significant changes in Q2 2024, with vacancy rates reaching a record 20.0%, surpassing the previous high of 18.7% set in 1988. This marks the sixth straight quarter of negative net absorption, though the pace of decline has started to slow, hinting at possible stabilization.
Despite high vacancies, leasing activity has picked up impressively in the first half of 2024. Six leases over 100,000 square feet were signed this quarter, showing that companies are making firm decisions about their office needs. Notable deals include Southern Company's 264,000 square feet at Midtown Center II and Newell Brands' 180,000 square feet at Queen Tower. This surge in large leases is a positive sign of business confidence in the Atlanta market.
Office attendance in Atlanta has jumped significantly, with a 13.8% year-over-year increase, the highest among major metro areas. However, attendance is still more than 25% below pre-pandemic levels, highlighting the ongoing relevance of hybrid work models and flexible office solutions.
Investment activity in the Atlanta office market remains below historical norms. Transaction volumes fell nearly 40% from the previous quarter, though they are up 20% year-over-year. The average price per square foot has dropped to $136, down from $281 at its peak in Q3 2022. This price dip presents attractive opportunities for investors looking to enter the market at more favorable valuations. With potential interest rate cuts on the horizon, this could be a good time for acquisitions.
The construction pipeline is at its lowest since Q3 2015, with about 75% of the new office space delivered this year still available for lease. Tenants are leaning towards more affordable second-generation spaces over new premium rents. Only 30% of the 1.3 million square feet of office space expected to be completed this year is pre-leased, which could push vacancy rates higher. Investors should be cautious with new developments, given the significant amount of unleased new supply.
Rental rates have remained relatively steady, with a slight year-over-year increase of 1.8%, averaging $31.66 per square foot. Trophy assets, especially new buildings in Midtown, continue to command high premiums, with asking rents reaching $70 per square foot. This suggests that while there's pressure on rental rates overall, high-quality assets in prime locations remain in demand.
For commercial real estate investors, the Atlanta office market in Q2 2024 presents a mix of challenges and opportunities. The high vacancy rate creates a chance to negotiate favorable lease terms, potentially securing long-term tenants with significant concessions. The rebound in leasing activity, especially with large leases, suggests the market might be turning a corner, so keeping an eye on leasing trends is essential.
The current pricing reset offers a window for attractive investments, particularly with expected interest rate cuts. However, caution is necessary regarding new developments due to the substantial unleased new supply. Additionally, investors should consider the ongoing trend towards hybrid work models, which will continue to influence office space demand.
For a detailed analysis, refer to the full Colliers Q2 2024 report by clicking on the button below:
