April 23, 2010
Atlanta Business Chronicle
By Doug Sams
Atlanta’s overabundance of office space might have an upside — more jobs.
The metro area has about 40 million square feet of empty office space, the most in its history.
The glut, combined with weak job growth, means office building owners are offering deals to land new tenants.
In the past year, the enticements for the largest deals involving the most creditworthy tenants have included up to $80 a square foot in tenant improvement allowances and two years of free rent.
The concessions, added to the existing attraction of lower energy costs and a skilled labor force, have made Atlanta a prime spot for corporate relocations.
Atlanta has benefited from similar office space surpluses in the past, said Rob Metcalf, a managing director at Jones Lang LaSalle Inc. who helped broker the recent deal for aluminum giant Novelis Inc.
The company in early April inked a 14-year lease for more than 100,000 square feet at Two Alliance Center. The new Buckhead tower will become its global headquarters.
“Although Novelis had a lot of options, we chose to keep our world headquarters in Buckhead — and to consolidate our Cleveland offices here also,” said Bob Virtue, Novelis vice president of human resources, corporate functions. “There are business reasons for this consolidation but another key reason is for us as a company, and as individuals, to continue to be able to enjoy the many benefits of working and living in Atlanta. The current availability of commercial space was not the driving factor, but it did help to make the decision easier. We believe it helped us achieve favorable terms on our new lease.”
Atlanta has already shown an ability to attract the big corporate relocations in a similar overdeveloped real estate market in the 1990s, said Bob Voyles, CEO of the developer Seven Oaks Co.
That’s when United Parcel Service Inc. relocated its corporate headquarters to metro Atlanta from Greenwich, Conn. Brown left Connecticut because high housing costs made it difficult to attract and retain employees.
How quickly Atlanta bounces back from the real estate downturn will depend greatly on job growth, Voyles said. He isn’t certain a quick rebound is around the corner.
Economists aren’t sure either. One of them is Jeffrey Rosensweig, director of the Global Perspectives Program at Emory University.
Rosensweig sees two possible scenarios.
According to his more conservative outlook, he forecasts the United States adding 2 million jobs, a scenario he gives “25 percent odds.” His more optimistic outlook for the economy would involve adding 3 million jobs, but he gives it just “10 percent” odds.
As for Atlanta, Rosensweig said, “office buildings face a tremendous glut of vacant space. This means [tenants] looking to lease offices hold all the cards.”
He added that excess supply means low rental prices.
In some parts of Atlanta, office rents have fallen at least 25 percent.
“The silver lining is this will help metro Atlanta attract businesses and thus jobs from more costly regions,” Rosensweig said.