Cousins, Piedmont Catching Flight To Quality At Renovated Atlanta Office Buildings

Two of Atlanta's biggest office landlords have drawn a number of relocations to legacy office assets that were recently renovated, showing the flight to quality in the leasing market isn't limited to new construction.

Executives with Piedmont Office Realty Trust and Cousins Properties said they have secured hundreds of thousands of square feet of leases at redeveloped properties in Metro Atlanta, including three corporate headquarters relocations to Piedmont's Atlanta Galleria office campus in the Cumberland/Galleria submarket just north of Downtown Atlanta.

“We signed nine new tenants at the Atlanta Galleria, including three corporate headquarter relocations, comprising 25K to 50K SF each, and we renewed an additional seven tenants,” Piedmont Chief Operating Officer George Wells said on his company's earnings call April 28. “Since January 2021, Piedmont has signed more than 291K SF of new deals with roughly 300K SF of leasable space remaining at the complex.”

Piedmont began to redevelop the Atlanta Galleria Office Park at the intersection of Interstates 75 and 285 in Cobb County, walkable to The Battery at Truist Park, after acquiring all five office towers in 2019. Wells said the new leases were signed for rates 10% higher than the previous rent roll.

Piedmont, which owns 52 Class-A office properties spanning more than 16M SF, has seen especially strong leasing in its Sun Belt properties, according to its quarterly earnings report. During the first quarter, Piedmont leased 552K SF across 50 deals, nearly half of which were new tenants, Wells said. Companies prefer high-quality office assets with lots of amenities as they fight to recruit and retain employees. 

“Atlanta, along with our other Sun Belt markets, Dallas and Orlando, help drive the first quarter's leasing activity,” Wells said.

Cousins, with a 19M SF office portfolio mainly located within the Sun Belt, also inked more than 1M SF of new and expanded leases during the first quarter, CEO Colin Connolly said during the firm's April 29 earnings call. Rents across the portfolio have hit an average of $35.45 per SF, the second-highest quarterly rate in the company's history, Cousins Executive Vice President of Operations Richard Hickson said on the call.

Cousins also toured 25% more companies in its available office spaces in Q1 compared to the end of 2021 and 40% more compared to the first quarter of last year, he said.

“I think it is important to address what is arguably the most important trend in our business today, which is the flight to quality by office users,” Hickson said. "Both market data and our specific experience showed that this trend is significant."

Cousins executives said companies are not only looking at newly delivered buildings in Sun Belt markets but also at older properties that have been refurbished and given an infusion of amenities and other perks.

“Demanded rents are rising for the best properties in Midtown Atlanta, Buckhead Atlanta, Downtown Austin, The Domain, Tempe, the south end of Charlotte, the Heights [Union] in Tampa, to name just a few,” Connolly said. "Conversely, commodity or suburban products dressed up with a pickleball court just won't cut it with Amazon, Google or Microsoft."

In 2020, Cousins began a renovation of its two-building Buckhead Plaza office project in the heart of Buckhead Village, including creating a more pedestrian-friendly plaza connected to its various restaurant tenants. Hickson said the results have led to leasing successes there.

“We started the project in late 2020 during Covid and have since completed 262K SF of leasing activity, and we anticipate signing another 42K SF imminently,” Hickson said. “This activity will bring the project from 73% leased, at its lowest point prior to the redevelopment, to approximately 93% leased, not to mention at record rental rates.”

Connolly said there is a clear preference among corporate tenants for Sun Belt markets. The region accounts for 26% of Cousins' national office inventory but 58% of new-to-market leasing in 2021, he said.

"Office demand is migrating to the Sun Belt in a significant way. It’s focused on the highest quality and most interesting product and is largely being driven by the tech sector,” he said. “These trends make logical sense. Select cities in the Sun Belt have meaningfully urbanized over the last decade. These markets now offer an exciting alternative to gateway cities at a much lower cost. Not surprising, employers are following the talent.”