Big Office Deals Are Returning To Atlanta, REIT Executives Say

Three of the largest office owners in Metro Atlanta say tenants looking for sizable office spaces are scouting the market as notes of optimism return to the beleaguered commercial real estate industry.

Leaders of Cousins Properties, Highwoods Properties and Piedmont Office Realty Trust struck optimistic tones as they detailed an increase in leasing activity in Atlanta and beyond during their third-quarter earnings calls. Together, the three landlords leased nearly 500K SF in Metro Atlanta in the third quarter, a good number of which were with firms that were expanding rather than taking less office space. 

And, they said, more is coming.

“Our late-stage pipeline remains at a very healthy level,” Cousins Executive Vice President Richard Hickson said during the company's Oct. 25 earnings call. "Our early-stage pipeline is even more encouraging, though recall, it takes time for that to translate to signed activity.” 

Companies leased more than 2M SF in the third quarter in Metro Atlanta, a nearly 30% increase from the third quarter of last year and bringing the year-to-date total leasing activity to 7.2M SF, according to Savills. 

The flow of deals is picking up as companies begin to demand employees report back to the office more often each week and companies that delayed capital decisions finally come off the sidelines to lease spaces, executives said during earnings calls.

Piedmont Office Realty Trust inked 13 office leases in the third quarter, encompassing 120K SF in Metro Atlanta, George Wells, the firm’s chief operating officer, said during its Oct. 25 earnings call. The activity included a “full-floor headquarters operations, the ninth in the past four years,” at Piedmont’s Galleria, Wells said.

Cousins signed 104K SF of leases in Atlanta, 68% of which being new and expansion leases, Hickson said. He pointed out that seven deals in the market of 75K SF or more were signed throughout the quarter.

Highwoods Properties also signed 271K SF in leases in Metro Atlanta, a majority of which were new deals, Chief Operating Officer Brian Leary said during the Oct. 24 earnings call. The Atlanta market, where Highwoods owns nearly 5M SF of office, accounted for nearly 30% of the REIT's third-quarter leasing activity.

In August, Highwoods announced that law firm Morris Manning & Martin leased 100K SF at the 30-story Two Alliance Center in Buckhead in what has been one of the largest office deals in Atlanta this year. And when asked about new-to-market customers in Atlanta, Highwoods CEO Ted Klinck said his team is seeing activity with companies seeking anywhere from 50K SF to 200K SF.

“You’re seeing larger customers come back to office or come back to the market,” Klinck said.  

Wells echoed that sentiment but pointed out that a majority of the activity is still coming from companies jumping from one building to another in the same city.

“I think what we are seeing is that those are more intermarket moves, those are not migrations from other cities so far, although there are some inbound activity occurring in Dallas and Atlanta,” Wells said. 

Cousins’ Hickson said Atlanta was the largest contributor to the company’s rent roll-ups, ahead of Austin and Tampa, with average net effective rents breaking company records at $34.57 per SF. With the pipeline of new construction dwindling, Cousins CEO Colin Connolly said there will be upward pressure on rents on premium office spaces in Atlanta and other markets.

“The lifestyle office market continues to improve. New construction is at historic lows while leasing demand is picking up,” Connolly said. “The market is rebalancing and a shortage of premium space is not far off. It is Econ 101.”

Connolly also said Cousins was beginning to have conversations with tenants that could spur new office developments, although he did not specify in which markets that may occur.

“I don’t think development is that far behind,” he said. “Some of the conversations that we’re having are with customers who are thinking longer term, very specific about their space needs. And I think you’ll see development in very select submarkets like the Domain [in Austin] as an example, be really not that far off.”