What's bubbling up in the market
Welcome to the first edition of The Water Cooler — the AJC’s office market and workplace newsletter! I'm Zachary Hansen . I've covered the Atlanta area for more than six years – the last two centered on commercial real estate transactions, trends and economic development.
On the third Tuesday of every month, we’ll offer a sweeping view of workplace trends and opportunities around metro Atlanta. That means insights useful to everyone from desk jockeys to C-suite executives. We’ll dive into the dynamics of the post-pandemic office and how it’s adapting to changing workplace trends.
It’s a piece of a larger suite of business newsletters we are piloting on LinkedIn — including The Concourse , your essential guide to what's new at the world's busiest airport.
?? Quick Question: How much is an office building worth these days? ??
Given the glut of available space, the answer is whatever someone else is willing to pay. And that figure has been declining to a point where many banks and investors won’t touch the property type regardless of its quality, location, tenant mix or other fundamentals.
Follow the money
OA Development saw dollar signs when looking at the Sugarloaf Corporate Center in Gwinnett County. The three-building suburban office park was 88% leased, with all its 28 tenants having signed or renewed leases since the onset of COVID-19. The campus’ owner, Velocis , was ready to sell them at a steep discount to cut its losses after the complex’s debt became unprofitable due to heightened interest rates .
But a problem emerged – no bank would touch the deal.
“Don’t even engage us. There’s no debt for office,” said OA partner Brian Granath , describing how six lenders immediately declined to consider backing the office transaction.
The developer eventually worked out a deal with Sugarloaf’s prior lender and snagged it for $32 million – a 25% discount from its last sale. Huston Green , 仲量联行 Atlanta’s managing director of capital markets who helped broker the sale, said he’s seeing more existing lenders work out terms since many banks are skittish to increase their office debt holdings .
“Financing for office today is challenging,” he said. “… It needs to become a little easier to access debt in order for the overall office market to improve.”
Sugarloaf is among several notable Atlanta office properties to see its value decline in what real estate experts call a market reset.
Planting roots
The grass is still green in Roswell, according to SiteOne Landscape Supply .
The landscaping and irrigation company renewed its nearly 56,000-square-foot lease within Mansell Overlook, a four-building office park, in early September, according to its brokerage firm 戴德梁行 . Leasing activity has begun to increase after several years of depressed activity as companies reevaluated how much workspace their employees need.
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Disrupting the 'doom loop'
Everyone has days that feel like a downward spiral where problems keep compounding with no bottom in sight. Cities can go through those periods as well.
Real estate experts fear for an “urban doom loop,” especially in the pandemic’s wake. Low office occupancy means fewer people supporting downtown restaurants and retail, which makes the area less desirable for office workers.
Rinse, repeat and a city’s vibrancy goes down the drain.
戴德梁行 published a fascinating study early in October evaluating 15 cities, including Atlanta, for doom loop signs. The top takeaway: There’s an optimal real estate product portfolio that isn’t reflected in most large American cities. The report concluded that downtowns should consist of 42% workplaces – much less than the 70% average of today – alongside 31% living spaces and 26% play spaces.
Stat of the month: 1.4 million
That’s the amount of office space that was under construction at the end of the second quarter in metro Atlanta, according to 世邦魏理仕 . It’s the lowest amount in recent history and shows how developers – and their financiers – are waiting for office demand to rebound before breaking new ground.
Media Relations @ Avison Young
1 个月A newsletter from Zachary Hansen?! Subscribe button = smashed ?
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1 个月Very insightful Zach!