The Atlanta Office Dichotomy: Leasing Slows But Jobs Grow

With plans to expand its workforce, customer information management software giant Salesforce is taking over the name and additional space of The Atlanta Plaza in Buckhead.

Salesforce announced Tuesday that it intends to expand its workforce in Atlanta by 600 employees and take on more office space at the 32-story office tower in Buckhead.

That building, owned by Banyan Street Capital and Oaktree Capital Management, will be renamed Salesforce Tower Atlanta. This will be part of a network of Salesforce regional headquarters that already includes Salesforce Towers in New York, Indianapolis and London. Its worldwide headquarters is the tallest building in San Francisco. 

Salesforce is the latest example of a company contributing to Atlanta's strengthening job growth in this cycle. Employers created more than 52,000 new jobs so far this year, helping push down the unemployment rate to 3.7% in the metro area, according to a Cushman & Wakefield report.

Yet that has led to a disconnect in Atlanta's office market. Absorption in Atlanta's offices — the measure of whether office supply is being leased or vacated on a citywide scale — shrank for the second quarter in a row, betraying a narrative of a solid office climate that has spurred the start of more than 4M SF in new office towers.

Atlanta office buildings tallied 117K SF of negative net absorption in the third quarter, most of which was felt in the prime, Class-A office market with more than 88K SF given up by tenants, according to Colliers International Atlanta. The culprit: large companies vacating big blocks of space, especially AT&T, which is in the process of emptying out its 1M SF Midtown tower to consolidate in its Buckhead campus.

So far, AT&T has vacated 500K SF throughout its Metro Atlanta consolidation, Colliers reported. But other companies that contributed to the shrinkage include Comcast, State Farm and General Motors.

Transwestern Director of Research Keith Pierce said these move-outs have created a trend of shrinking office demand during a time when companies are strongly adding to their payrolls in Atlanta and beyond.

“I think we're seeing some consolidation, but it's not as though the people are going away or the jobs are going away,” Pierce said.

What has been a decade-long phenomenon — companies cramming more employees into less office space — is finally brewing into a perfect storm that is turning absorption negative in Atlanta, he said. On average, companies today use about 150/SF per employee. In the 1990s, that average was more than 200/SF.

Record-high office rents in Atlanta have also created sticker shock with tenants in Atlanta, Cushman & Wakefield Executive Director Ken Ashley wrote in an email. According to a Colliers report, asking rents for office space have rose from $23.72/SF in 2017 to $25.75/SF today. With rising land and construction costs, new Class-A office development has pushed average rates for trophy office spaces up across the board as well, now hovering near $30/SF.

Ashley said this may be leading to a resurgence of interest by companies to locate in prominent Atlanta suburbs instead of clustering in the primary central markets of Midtown and Buckhead.

“The lack of big-block availabilities in the CBD means that companies in the market for large contiguous space have limited choices almost exclusively in the suburbs soaked by the downsizing wave,” Ashley said.

Pierce said companies are fleeing to cheaper office space alternatives within Atlanta's urban office market. He noted how the vacancy rate has been plummeting among Class-B properties in Midtown and Buckhead and are now at 4.3% and 7.3%, respectively.

“Office activity happens in waves, trying to analyze it is difficult,” PMRG Eastern Division President Bill Weghorst said. “The bottom line is every domestic economic indicator is still positive. Excluding an economic international surprise, this growth cycle isn't over.”