By Gary Waddell
Senior Director, Office Tenant Representation Services
For years, commercial real estate observers have looked to the Central Perimeter in order to get a read on what’s on tap for the metro market. It was the canary in the Atlanta coal mine, a bellwether that gave tenants, landlords, and brokers a reliable indicator of where the overall office market was heading.
Central Perimeter earned this reputation for a couple of reasons:
- It’s the geographic population and employment center of the overall area. Over the past several decades, metro Atlanta’s population growth has been primarily on the north side, making Central Perimeter more the “bull’s eye” than Downtown. As a result, the submarket is home to Atlanta’s largest concentration of office space – if you want to attract top talent, the middle of the entire metro labor pool is a great place to set up shop.
- Low barriers to entry and strong demand create early supply-side indicators. As Atlanta’s largest office submarket, Central Perimeter has traditionally been the first to experience trend shifts. Owners of office buildings elsewhere in the metro area could look to Central Perimeter as a barometer for trends in vacancy rates, rents, concession packages, development, and more. “As goes the Central Perimeter, so goes metro Atlanta” has been a reliable gauge for many real estate cycles.
Bursting at the Seams
A traditional strength of the Central Perimeter area was the availability of future office development sites. And the need for them is getting bigger. Due to continued absorption of previously vacant blocks by State Farm, along with other major company announcements, Central Perimeter has seen a steady decline in existing availabilities exceeding 50,000 square feet, or “big blocks,” over the past 12 months.
These options for large occupiers are becoming few and far between. Currently, there are three existing availabilities exceeding 100,000 square feet in Central Perimeter and only a few more exceeding 50,000 square feet. As large tenant requirements continue to hit the market in Central Perimeter and these “big block” availabilities are accounted for, the talk of new development has become an increasing trend in this submarket.
Currently, Cushman & Wakefield is tracking 16 office development sites entering the Central Perimeter submarket that will continue to compete for large requirements. Two of these sites include the newly announced 17-acre mixed-use project at Hammond Drive and Perimeter Center Parkway from Dallas-based KDC, headlined by State Farm. Other sites include Hines’s Northpark 100 and 700 that could include a total of 1.5 million square feet of office space. Also, the 41-acre site known as “High Street Atlanta” – located by the Dunwoody MARTA station, between Perimeter Center Parkway and Hammond Place – is a massive mixed-use development proposed by GID Development Group that would include 860,000 square feet of office space, 400 hotel rooms, and 1,500 multifamily units.
Although there are many office development sites currently in the pipeline, it is not likely any of these projects will be developed in the near term without significant pre-leasing (approximately 50%). Also, rents needed to justify development are estimated to be in the high $30’s per square foot gross, well above the current Central Perimeter average asking rate of $28.72 per square foot gross for Class A space.
The Big Three Projects
As far as Central Perimeter development goes, State Farm has been the talk for quite some time now, taking up much of the spotlight for the past 24-36 months. They currently occupy 1.3 million square feet in both leased and owned space within the submarket, while they’re developing a 2-million-square-foot mixed-use project, where they’ll consolidate most of their current workforce once it’s completed, in addition to hiring 3,000 employees in the metro Atlanta area. They expect to eventually house 8,000 employees at the new campus.
Also generating a lot of discussion is the $1 billion+ GA400/I-285 Interchange Project (See GDOT’s flyover rendering video, above), set to start in the fourth quarter of this year. Its goal is to improve traffic flow between those two major highways, along with improvements to the Glenridge Connector, with the positive effects trickling down to the entire Central Perimeter area. It’s expected to take 42 months to complete, and the Georgia Department of Transportation hopes the payoff for the northern part of the city will be big.
Likewise, there’s plenty of potential in the newest significant announcement that Mercedes-Benz will relocate its U.S. headquarters from Montvale, N.J., to the Central Perimeter. The move will bring 800 jobs and an investment of approximately $74 million, and Mercedes-Benz plans to begin relocating employees to Atlanta in July. They’ll occupy a temporary facility in the Perimeter Center on an interim basis while construction is ongoing on their new 10-acre facility at Georgia 400 and Abernathy Road. The impact of the arrival of a luxury, internationally known brand like this for the submarket can’t be overstated.
In terms of office market activity, Central Perimeter has experienced great momentum and, as a result, there are potential effects that must be taken into consideration. The addition of new employees from State Farm and other companies entering or expanding in the submarket, such as Airwatch, could present new density-related challenges in the area. In addition, Steven Swicegood, Principal at Gensler, estimates that companies have reached a tipping point in terms of average square feet per seat in office space. Currently, he estimates Atlanta’s average density is 160 sf/seat. Although he does not believe that figure will go much lower without some backlash from existing and potential employees, it is apparent that more and more companies are concerned with efficiency and will continue to push density in order to maximize the number of employees per square foot of office space.
All of these variables will present a challenge with parking availability and traffic congestion on a scale the market has not experienced in the past. MARTA continues to benefit a number of employees in the area; however, there is still a significant amount of vehicular traffic during peak hours. The Perimeter CID is currently working on several improvements, including traffic signal-timing plans that will reduce travel time and improve traffic flow. In terms of parking, free office parking for employees has traditionally been the standard in Central Perimeter. As employee density in the area increases, landlords could re-evaluate how they approach free parking for their tenants’ employees.
That’s not news many tenants and employees who work in the area want to hear, but it may be the reality for a submarket that’s benefiting as much as any from Atlanta’s robust economic recovery. As more businesses want to make the Central Perimeter home in the coming years, it only further cements itself as one of the metro area’s most important submarkets.