In some Atlanta submarkets, a significant amount of leasing is occurring, but net absorption doesn’t reflect this activity. Take Midtown for example: in 2017 there was 1.2 million square feet of leasing activity in Class A buildings, but only 264,441 square feet of net absorption. So, what’s causing the phenomena? Tenants are giving back space, particularly law firms and other non-dense traditional office users, and back-filling the space immediately.
With advancements in technology and automated systems, alongside the new amenity base that building owners provide, we have seen a significant reduction in the foot print for many tenants, particularly with law firms. Cushman & Wakefield’s 2017 Bright Insight Report indicated the current national average is around 850 square feet per attorney. However, as firms consolidate they are targeting a ratio that’s closer to 600 square feet or less. The need for law libraries, one paralegal per lawyer, and full-service catering kitchens and event space are a thing of the past.
As space becomes available, building owners are renovating to change their image and attract today’s hot office tenant – technology companies. With a handful of start-ups graduating from co-working space and incubators such as ATDC and Atlanta Tech Village each year, they are seeking permanent offerings with room to grow. Marble lobbies are being replaced with sleek, modern furniture, collaboration spaces and eye-catching artwork and video screens.
For example, last year, Flex, a company that delivers design, engineering, manufacturing, real-time supply chain insight and logistics services, moved into a former kitchen/catering floor at Regions Plaza. The building sold in August 2017 following a massive renovation including new conference facilities, fitness center, staffed concierge, renovated common areas and café, a new FlyWheel Studio and valet parking.
Institutional buyers, which commonly have the money to fund such massive renovation programs, are currently the primary purchaser of Class A office buildings. As more buildings in Midtown trade and landlords seek to continue attracting top tenants, there should be a significant amount of future-proofing occurring. On the occupier side, we expect more professional services firms will continue to modernize to compete for top talent, needing smaller, but more functional, office footprints . This trend is likely to continue, cementing Midtown as the primary location for tech companies and corporate innovation centers seeking office space for the future.
Trey Dove serves as a Senior Associate in Cushman & Wakefield’s Atlanta office. With a focus on serving occupiers in the Southeast, Mr. Dove drives value for his clients by ensuring that they have the knowledge they need to make informed real estate decisions.
Annie Lewis is a real estate professional specializing in Tenant Advisory Services within the Brokerage Services division of Cushman & Wakefield. Drawing on a background of sales and marketing, she drives value for the clients she represents by serving as their real estate advocate and providing consulting in order to develop a strategic real estate plan.