Atlanta office begins to wane; vacancies rise in Q3
- Quarterly absorption turned negative for the first time in two years as occupancies were subdued in the third quarter.
- Many of the anticipated move-ins for Q3 were pushed off to the fourth quarter of the year.
- Only three of Atlanta's office submarkets showed positive gains this quarter: South Atlanta, Northlake and West Atlanta. All others experienced occupancy losses.
- The overall office vacancy rate increased for a second consecutive quarter, up 20 basis points (0.2%) from Q2. The Class A vacancy rate increased for the first time in almost two years.
- Available sublease space increased by the highest quarterly amount ever in Atlanta's office market history.
- Rental rate increases have begun to slow, likely holding steady in the near term as the market starts to deal with excess supply.
- The third quarter proved to be a period where COVID-19 has impacted the Atlanta office market. Despite the negatives, including a continued drop in leasing activity, the overall outlook remains upbeat.
Atlanta Office Market
The third quarter of the year proved to be challenging for Atlanta's office market as the pandemic's effect has begun to impact overall conditions. For the first time in two years, quarterly absorption turned negative, albeit by a relatively manageable amount.
A net total of just under 170,000 square feet of space was vacated this quarter, with its major submarkets seeing more tenants move out of, rather than into, space. South Atlanta, for the first time likely ever, led the Atlanta office market in occupancy gains in Q3 thanks to a build-to-suit delivery for SMC3. Northlake and West Atlanta accompanied the submarket as being the only areas to experience positive absorption.
The amount of vacant office space in Atlanta increased for a third consecutive period; this quarter's resulted from negative absorption and just over 200,000 square feet of new deliveries. The Class A market saw its vacancy rate increase for the first time in almost two years.
Equally, if not more concerning, is the record increase in sublease availability in the Atlanta office market this quarter. Fortunately, most of this space has yet to be vacated; however, this particular metric can be directly tied to COVID-19's influence.
Atlanta Real Estate Market Forecast
To some extent, this quarter's negative results are not surprising given what is going on in office markets across the country. Overall, Atlanta's occupancy loss is malleable.
Additionally, Q3 was not without some impressive successes. These notable deals represent metro Atlanta's ongoing attraction for companies to locate and expand, despite the pandemic. This is further validated by the Metro Atlanta Chamber of Commerce's pipeline of projects.
When recently asked about their outlook for business activity in the region, leaders have noted they have never been busier with prospects. In the interim, challenges lie ahead for Atlanta's office market, specifically related to the tremendous increase in sublease availability over the past seven months.
Confirmation of increased business activity from the region's top source for attracting companies to the area, however, means Atlanta's office market future is on the right track, both now and in a post-pandemic world.