1st Quarter 2019 Office Report

Office Market Summary

The post recession high in most of the performance indicators for the metro Atlanta office market was in 2016 with 2017 still strong but indicating a slight cooling off as cap rates increased and values declined. 2018 rebounded nicely outperforming 2016. Most of those trends continued in Q1 of 2019 with the exception of a decline in values and the number of transactions.  Those indicators will need to be closely watched as we move through the year. Overall, new construction is a concern in some markets but most market participants are optimistic about 2019 for the metro Atlanta office market.

Below is a quick summary of the Q1 2019 stats that lead to the conclusion above as compiled by Crossroads Appraisal Group from information obtained from CoStar.  If you would like a PDF version of the information below, it is available here for your convenience.

SUPPLY

A total of 16,642 office buildings were identified in metro Atlanta housing about 316.7 million square feet. Supply has been increasing each year since 2013 in terms of square feet with number of buildings declining in 2015 and 2016 as a result of redevelopment projects.  However, 2018 has seen a significant increase in new buildings delivered as rents are once again supporting new construction in some markets with that trend continuing into Q1 of 2019.

VACANCY TRENDS

Vacancy rates trended down sharply from 2013 to 2015 and continue to trend down but at a much more modest pace. The stabilization of the vacancy rate is more a result of new construction and not a market slow down.

ABSORPTION, DELIVERIES & UNDER CONSTRUCTION

Of slight concern is the fact that construction began outpacing absorption since 2016, a trend that continued into Q1 of 2019.

TRANSACTION VOLUME

Sales activity in the market has generally trended up with 2018 recording the seven year .

VALUATION HISTORY

Values generally trended upward from 2013 to 2016, while cap rates were compressing.  2017 recorded a slight pullback in values but recovered in 2018.  Q1 of 2019 has seen another pullback in values and will need to be monitored.  However, cap rate compression has continued into the new year.

RENT TRENDS

Rents have been trending positive since 2013 and continue to grow despite new construction with Q1 2019 topping the $25 per square foot mark.

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