- Office market sees 57% y-o-y increase in investment sales
- Average prices hold above $200 per sq. ft. for 3rd consecutive quarter
- Top Q1 deal shatters Atlanta office per-square-foot record
- 6 million square feet of new inventory expected in Q2
The sustained momentum experienced by the Atlanta office market in 2015 and 2016 led the quarterly dollar volume to occasionally exceed the $1 billion mark, peaking at $1.7 billion in Q4 2015 and Q4 2016. What followed was a more tempered 2017, during which major investment sales, although still higher than average, stopped short of $970 million at the close of Q3, and then continued to adjust downward. This steady post-peak market correction continued through Q1 2018, with sales activity still cooling slowly, and average prices holding near $250 per square foot.
As the Georgia Institute of Technology continues to deliver valuable research and tech talent to the region, local companies prepare for growth, and outside investors are looking to enter the market and tap into its increasingly Millennial-rich talent pool.
Read on to see how the Atlanta office market fared at the start of the year.
Q1 Investments Up 57% Y-o-Y, Pointing to a Positive 2018
Activity recorded through March made for a good beginning of 2018. According to data going back five years, the market most often sees investment sales totaling more than $600 million per quarter.
With 17 deals closed on the Atlanta office market during Q1, sales amounted to $681 million. The numbers mark a 25% drop compared to Q4 2017, which is likely due to the market still adjusting to the new normal after the 2015-2016 boost in activity. However, the Q1 dollar volume increased a sturdy 57% year-over-year—given that the market has a record of performing best in H2, we can expect fundamentals to remain positive throughout 2018.
Prices Rise 73% Y-o-Y, Marking 2nd Best-Performing Quarter in 5 Years
Just over 2.8 million square feet of Atlanta office space traded between January and March, the third time in five years that less than 3 million square feet of office space was transacted per quarter. However, prices have been holding higher ground, wrapping up Q1 at an average of $244 per square foot—a significant 73% year-over-year increase, and a 3% uptick compared to the previous quarter.
Q1 marked the third consecutive quarter of prices averaging above the $200 threshold, and the second-highest average price per square foot in five years—just 5% below the $257-per-square-foot record seen in Q3 2017.
Three Alliance Center Trades in Record-Breaking Q1 Sale
The year kicked off with seven major deals closed in January totaling just over $413 million, accounting for roughly 60% of Q1 office sales. What’s more, the priciest January sale shattered the Atlanta office market’s per-square-foot record and set a new high-water mark for spec office buildings in the area.
Tishman Speyer’s Three Alliance Center commanded $268 million, and was purchased by the Florida State Board of Administration. Encompassing 500,000 rentable square feet, the tower sold for an estimated $535 per square foot—according to the Atlanta Business Chronicle, this is the highest price ever paid for an office property on the Atlanta market.
Three Alliance Center stands as a totem of faith in the strength and potential of the Atlanta office market. The 30-story trophy tower located at 3550 Lenox Road NE was reportedly built on one of the last developable parcels in Buckhead, was Atlanta’s first major office project to be started in nearly a decade, and was entirely speculative. Completed last year as the third and final phase of the 1.5 million-square-foot Alliance Complex, the Class A high-rise was the last property remaining in Tishman Speyer’s Atlanta office portfolio.
Atlanta Office Pipeline to Deliver 2.6 MSF in Q2
Only three new office projects were completed in Atlanta during Q1 2018, totaling 774,000 square feet. All three developments serve corporate consolidations, relocations, and expansions.
The largest development to come online was Phase I of Spring @ 8th. Designed by HKS, Duda Paine, and Gensler, and developed by Cousins Properties, the 22-story, 485,000-square-foot Midtown Atlanta office building is slated to serve as Fortune 500 tech company NCR Corp.’s statement headquarters.
After two years of construction, leading luxury brand Mercedes-Benz opened its new 225,000-square-foot U.S. headquarters. Located on a 12-acre lot in Sandy Springs, the facility was designed around the way employees utilize the space, and boasts a 1:1 ratio of collaborative seating and individual workstations.
A total of 11 developments are scheduled for completion in Q2 in the Greater Atlanta area, encompassing 2.6 million square feet. Nine of these projects will come online in Atlanta. The largest here is the massive 1.1 million-square-foot Works at Chattahoochee—an 80-acre forward-thinking adaptive mixed-use development undertaken by Selig, and inspired by local makers, artisans, and entrepreneurs. Phase one of The Works is scheduled for completion by the end of June.
The Alpharetta office submarket will welcome the 107,643-square-foot Building 1 of The Edison, TPA Group’s three-building creative campus that is designed to meet the needs of the growing local tech community.
We delved into Yardi Matrix data to analyze all office transactions with price tags equal to or exceeding $5 million to close on the Atlanta office market during the first quarter of 2018 (January through March). Our analysis, based on data recorded up until April 24th, 2018, includes completed office buildings equal to or larger than 50,000 square feet that changed owners during the quarter. Regarding mixed-use assets, only properties featuring over 50% office space were taken into account. We considered portfolio deals as single transactions and excluded distressed sales altogether. To make sure the trends and comparisons presented in our analysis are valid, we excluded portfolio, partial interest and ground lease deals from our calculation of the average price per square foot.
Although we have made every effort to ensure the accuracy, timeliness and completeness of the information included in this report, the data is provided “as is” and neither COMMERCIALCafé nor Yardi Matrix can guarantee that the information provided herein is exhaustive.
Property images courtesy of Yardi Matrix.