Atlanta’s Office Leasing Market Favors Youthful Buildings

The flight to quality in Atlanta’s office market has left some landlords dealing with a whirlwind of declining value and financial difficulties.

Demand for high-quality office space is soaring, leaving older, less desirable buildings in the dust, the Atlanta Business Chronicle reported.

The difference in demand between Atlanta’s old and newer office buildings is striking. Office buildings built between 2016 and 2021 are leasing quickly, with an average occupancy rate of 92 percent, according to JLL. The city’s overall vacancy rate is 27 percent.

These newer properties feature desirable amenities like walkable locations and up-to-date facilities, attracting tenants looking for premium office space. As a result, many of the older properties in the metro, including the Piedmont Center in Buckhead, are struggling to retain value.

The 46-acre campus is facing foreclosure, after Matt Shulman’s Ardent Companies defaulted on a $330 million loan from Morgan Stanley. The value of the 14-building campus, located near Piedmont and Lenox roads, has dropped dramatically, from $657 million in 2021 to an estimated $200 million, reflecting a 70 percent decline in its per-square-foot value from $298 to $91.

Ardent acquired the property over several years and has faced financial struggles, including unpaid construction and brokerage fees. The 2.2-million-square-foot campus, once a key asset in Buckhead’s office market, is 63 percent leased with an average lease term of 4.1 years remaining.

While office space in the broader metro area saw negative absorption in the fourth quarter, with 130,000 square feet of space vacated, top-tier buildings experienced the opposite. These “trophy” assets saw nearly 100,000 square feet of positive absorption during the same period.

Much of this push for premium office space has been fueled by the increasing number of workers returning to the office full-time and the need for modern, well-equipped workspaces. With high-quality spaces in demand, landlords of older buildings must decide whether to invest in renovations or face further financial decline.

The construction pipeline for office buildings has slowed dramatically. Fewer than 500,000 square feet were under construction in the fourth quarter, the lowest point since 2011.

Some developers are still pressing forward with new projects. Portman Holdings, for example, completed Ten Twenty Spring in Midtown in December. However, the 530,000-square-foot office, Class A building has not yet secured a tenant, despite offering luxury amenities.

— Andrew Terrell