Remember early this spring when everyone said we will be back in the office by Labor Day at the latest?
As an endless summer of Zoom calls and screen sharing draws to a close, many of us still find ourselves in yoga pants and tee shirts marveling at our productivity from whatever we have defined as our home office. If you are so lucky to be on the highway at 8 AM, you still get the thrill of the open road and are almost guaranteed a prize parking spot in nearly empty office complexes.
Most accounting and finance leaders continue to tell us that the productivity of their teams remains high, and the return to office football has now been punted to “sometime after the first of the year” with the same precision as the thought process that formed the Labor Day goal post.
But what does this all mean for the Atlanta office leasing market? We asked Jodi Selvey, Senior Vice President at Colliers International in Atlanta, to share her insights into the current trends in the Atlanta office leasing market.
Jodi Selvey, Senior Vice President, Colliers International Atlanta
Q: What are the current trends you are seeing in the Atlanta office leasing market?
A: There are several trends we are seeing right now due to the Pandemic:
- Tenants with expiring leases are doing short-term renewals or shorter than normal lease terms and are taking a wait-and-see approach.
- Many tenants are now starting to evaluate their needs going forward and are choosing to sublease their space because they are now allowing some, if not all, of the employees to work from home. Some positions will move permanently to work from home positions and moving forward, space plans will change. Some companies that have near-term lease expiration dates are choosing to sublease instead of signing a direct lease with the landlord so they can take advantage of some stellar deals and be able to sign for a shorter term, which will allow them to see what their space needs are moving forward.
- Some tenants want more space to social distance and the tall cubes of 10 years ago are starting to have appeal again due to the ability they give for privacy and social distancing measures.
Q: Are rental rates declining as more space becomes available?
A: Right now, landlords are trying to hold firm on rental rates and concessions, but as the subleases start to flood the market, they will need to get more aggressive to compete. Sale prices for buildings that are well located in intown markets are holding very steady or increasing as demand for private space/buildings has increased and the cost to borrow money is at historic lows.
Q: Are companies downsizing their space requirements in anticipation of less office density due to future remote working situations?
A: There are some companies that think they will want less density but most are taking a wait-and-see attitude. The furniture vendors were the first ones to come out with different ways to combat COVID with plexiglass dividers and adding height to existing cubes. I have heard from many of my clients that do not want to make a major capital expenditure on new furniture or add private offices for what many think is a temporary problem.
Q: How are other types of real estate such as industrial and retail being affected?
A: Industrial real estate that is well located and services the large big box companies like Amazon, Publix, etc. is on fire. Another subset of Industrial Real Estate that is doing very well is cold storage. With the surge of everyone staying at home and cooking, the grocery stores need to lease more distribution space closer to their stores to keep the stores stocked. Because so many restaurants are closed but still want to service their customers, they have opened ghost kitchens to do curbside orders. This is a growing trend that started before the pandemic and has gotten even bigger now.
Retail has suffered the most with many small and large retailers shuttering their stores around the country. However, we are seeing the beginning of a trend of large big box stores that closed being converted to last mile delivery for warehousing. This trend will continue as more large retailers that have locations near highways and other distribution centers close down. Small un-anchored strip centers are going to have the hardest time replacing their tenants and maintaining their rental rates.
Q: Are there any other trends that you are seeing?
A: There has been a lot of discussion of tenants fleeing the intown markets and moving to the suburbs. We have yet to see that happen in Atlanta as our Midtown market is still one of the hottest markets in the country with Google and Microsoft recently signing very large leases, and Microsoft also recently purchased a large site in West Midtown where we expect to see some workplace housing. I have spoken with agents in San Francisco, Chicago, Portland, and New York who are seeing rental rates falling and tenants wanting to move away from the city due to high density, crime, and the cost to do business.
We are also helping clients who want to try to take advantage of what could be good deal terms in the near future by negotiating a “blend-and-extend” with their current landlord. This method involves being able to get current market concessions and rates by agreeing to extend the lease beyond the current expiration date.