Third quarter 2005 continued a slow, but consistent, absorption trend for the Atlanta offi ce market. With 13 of Atlanta’s 16 submarkets showing positive absorption, the overall market registered 473,433 square feet of positive absorption during the third quarter, the largest during the last four quarters. Year-to-date absorption totals 903,078 square feet.
Overall average rental rates continued to increase marginally, from $20.11 per square foot at year-end 2004 to $20.46 at the end of the 2005’s third quarter. Not surprisingly, the three leading submarkets in average rental rates are all in the urban corridor: Buckhead/Lenox at $24.92 per square foot, Midtown at $24.38, and Downtown at $21.17. The I-285/GA-400 and the I-75/I-285 submarkets led the suburbs at $21.01 and $20.14 per square foot, respectively.
The leading submarkets in year-to-date absorption are the I-285/GA-400 submarket at 643,380 square feet, followed by GA-400 North at 297,536 square feet, and Midtown at 236,570 square feet. Total space availability has decreased by nearly two million square feet since second quarter 2004 (from 23,116,322 square feet to 21,161,144), due primarily to positive absorption but also to a number of buildings being removed from the market for alternative uses or redevelopment. Teardowns and conversions will continue with a number of low-rise office parks along the perimeter being demolished and several intown buildings undergoing conversions. 256,000 square feet of office space has been removed from the market during 2005.
The submarkets with the greatest availability remain the same with three submarkets having more than 3 million square feet available: I-285/GA-400 at 3,484,750 square feet, I-75/I-285 with 3,302,605, and Downtown with 3,054,197.
The suburban submarkets have soundly outperformed the urban markets for 2005 year-to-date with the spread between their occupancy levels narrowing. The urban corridor still remains at a higher occupancy level at 83.94 percent as compared to the suburbs at 82.79 percent. The urban submarkets’ average rental rate is signifi cantly higher at $23.21 per square foot as compared to the suburbs’ $19.15 per square foot. Year-to-date, the suburban market absorbed 900,444 square feet, while the urban market managed only 2,634 square feet of positive absorption.
Only one delivery has occurred so far in 2005, a 56,400 square foot, one-story offi ce building at Camp Creek Business Park. The Southern Company Headquarters—30 Allen Plaza in Downtown, a 260,000 square foot building— is scheduled for delivery in the fourth quarter for a projected total of 316,400 square feet to be delivered during 2005. This is the lowest amount of new space delivered since we began tracking the offi ce market eighteen years ago. New deliveries in 2006 and 2007 will bring an additional majority will be along the urban corridor.
For the next several years, the urban corridor will experience a much higher level of new office development than the suburbs, which has not been the case over the last thirty years. This situation will continue primarily due to the urban corridor’s
accessibility, convenience, public transportation, shorter commute times, numerous amenities, and proximity to Hartsfi eld-Jackson International Airport. Although the offi ce market remains a buyer’s market, our outlook remains positive with continued absorption and market conditions less concessionary
than a year ago. Actual market performance in 2005 may fall short of our earlier projections of 85 percent occupancy for year-end 2005 requiring an additional one million square feet of positive absorption and/or additional offi ce buildings being removed from inventory by year-end 2005. Nonetheless, the offi ce market will approach this occupancy level due to increased market activity.
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