Small Smyrna office example of Atlanta's new real estate reality
The Atlanta Journal-Constitution
One small office building was completed in metro Atlanta in the second quarter of this year.
And it wasn’t even a whole office building.
At 6,000 square feet, the project is a graphic illustration of the fierce slowdown in office construction wrought by the Great Recession in Atlanta. A market accustomed to adding hundreds of buildings with millions of square feet in recent years has declined to a single tiny outpost in Smyrna.
There, on South Atlanta Road, is Atlanta’s newest construction.
“I had no idea,” said T.R. “Ted” Benning III, when informed that the new training facility and gym for his construction company headquarters formed the lone newcomer from March to June this year, according to real estate services firm CoStar Group.
A year ago, it was a different a story. Seventeen buildings totaling 932,883 square feet -- nearly the equivalent of a 55-story tower downtown -- were completed in metro Atlanta in the second quarter of 2009. And just over ten years ago? A whole skyline emerged from the ground. In all of 1999, construction was completed on 258 buildings totaling 11.2 million square feet, according to CoStar.
By comparison, Benning’s 6,000 square foot addition is less than half the size of a typical Walgreens.
Clark Gore, market director for real estate services firm Jones Lang LaSalle in Atlanta, said it’s definitely a sign of the times.
“It’s no surprise that nobody has started a building that would be [completed] in the middle of this transition from recession to recovery,” Gore said.
“The gestation period for an office building is a long one. Design, permitting and construction can take 24 to 48 months depending on how big the building is."
Most of what was completed recently was conceptualized when the market was booming, he said.
Now it's even harder to start a new office building from the ground up, as vacancy rates are at historic highs, landlords of existing buildings are competing fiercely for tenants, and most banks are saying "no way" to approving new loans on office towers. At one point, metro Atlanta had a 12-year supply of office space.
Significant new towers completed in the last year include 12th & Midtown on Peachtree Street, 271 17th Street in Atlantic Station, and Terminus 200 and Phipps Tower in Buckhead. All have nearly 500,000 square feet or more. Still, all has not been smooth sailing: The developer of Phipps Tower filed for bankruptcy and Cousins Properties took a $38.9 million write-down on the value of Terminus 200.
Construction was completed on those buildings as the “market was cratering,” Gore added, leaving historic office vacancy rates in some parts of Atlanta.
As for Benning, he knows first hand about the vagaries of the real estate market.
The Great Recession hit the construction industry fairly hard, including his third-generation, family-owned firm that went from 150 employees to just under 100. His new office space gave his workers something to do as his own business mix changed.
Benning Construction, in business for nearly 60 years, made its reputation building Publix stores and movie theaters.
“That was nearly 80 percent of my business,” Benning said.
Today, it amounts to only a third. Another third is restoration and renovation projects, and the final third is government and medical office projects.
“When we started to see the market turn – and we saw the cracks of the housing bubble around 2006 -- we said we need to get ready to do this other sector of work. And we’re thankful to have it,” he said.
Benning believes the economy is recovering, however. His bullishness on his company’s future is why he built the new training facility that can fit 140 employees and an employee gym where a personal trainer comes every Monday.
He also made the addition “green,” as the new space is LEED certified. He wouldn’t discuss how much he spent on the additional space.
The 6,000 square foot addition brings his total office space to 16,000 square feet.
Still, there is a bit of irony to his story: The addition actually added empty office space to the northwest submarket, which had 16.8 percent vacancy rate at the end of the second quarter, according to CoStar.
Benning can’t use all the space, which is why he retained a broker at Ackerman & Co. to lease 2,000 square feet for $14 per square foot.
Benning said his his firm eventually will “absorb” all the space, once business is back to normal.
To be sure, the 2,000 square feet added to the market is barely a blip on the market.
“It’s a nonevent,” said Gore, “compared to what we’ve delivered in Atlanta over the last 18 months.”
Metrowide, Atlanta’s vacancy rate is 17.3 percent, CoStar said, though other firms report the vacancy rate above 20 percent.
The trend of completed office buildings will continue downward as construction starts continue to slide in metro Atlanta.
At the end of the second quarter, 258,971 square feet of office space was under construction, according to CoStar, compared to 3.28 million square feet that was started in the third quarter of 2007. Three hundred office buildings with nearly 6 million square feet were completed in 2007, according to CoStar.
Charting the change
Completed office space by number of buildings, square footage and vacancy rate in metro Atlanta
2010-Q2: 1/6,000 sf/17.3 percent
2010-Q1: 10/1.7 million sf/17.4 percent
2009-Q4: 5/112,106 sf/16.7 percent
2009-Q3: 22/1.4 million sf/16.4 percent
2009-Q2: 17/932,883 sf/15.7 percent
2009-Q1: 34/411,028 sf/14.9 percent
Is it still on with you, me and Arielle? 8:15 at the Starbucks by the Perimeter Pointe movie theatre is what I remember us planningJ
Thanks,
Catherine
Catherine Langell
Marketing Associate, Communications
Cushman & Wakefield, Inc.
55 Ivan Allen Jr. Boulevard, Suite 700
Atlanta, GA 30308
Direct: 404-853-5217 | mobile: 678-640-6383
E-mail: catherine.langell@cushwake.com
www.cushmanwakefield.com
http://www.ajc.com/business/small-smyrna-office-example-608519.html
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