Buckhead office market recovering well; but experts focus on multi-family, student housing, urban infill

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Those attending two major business meetings in Buckhead last weekreceived copies of an Atlanta Urban Skyline Review for 2012 by Jones LangLasalle that painted a bright picture for the post-recession Class A officemarket in Buckhead, which leads the recovery inside the Perimeter.

The first group of more than 150 business, civic and political leaderswere attending the Buckhead Coalition’s annual luncheon meeting Jan. 30 at 103West and received a copy of a Buckhead Spotlight that was one of the itemsgiven each attendee in a goodie package as they left the meeting.
The full Jones Lang Lasalle graphic report was then available for some300 commercial real estate and construction professionals who attended theAtlanta Construction & Development Summit put on Jan. 31 by the Bisnowonline real estate news service at the Grand Hyatt hotel.
Here are some of the highlights of the report on Buckhead’s Class ASkyline office space:

• Buckhead’s direct Class A vacancy rate is one of the lowest in Atlanta,dropping from a high watermark of 27 percent at the outset of 2010 to 13.2percent by the end of 2012.
• Despite a dip in absorption during the fourth quarter of 2012, 1.6million square feet of vacant space has been backfilled during thepost-recession recovery.
• Currently there are only three available contiguous blocks of Skylinespace over 100,000 square feet in Buckhead. Neighboring Midtown has three timesthat number of big block options.
• Manulife Financial Corp.’s Phipps Tower, which had remained virtuallyvacant since coming online in early 2010, became at least half-leased at theend of 2012 with one deal—Carter’s Inc. announcing it would take 222,730 squarefeet in the building for its new headquarters.
• Buckhead’s direct leasing rates were $27.83 per square foot, justslightly behind Midtown’s rate of $27.90 and much ahead of the average downtownrental rates of $19.85 per square foot.

Panel moderator Brian Terrell of Jones Lang Lasalle, right,
with Pope & Land's Kerry Armstrong at Bisnow summit.

With that stage-setting information, the Bisnow summit featured a panelof six development, construction and architecture executives, which wasmoderated by Brian Terrell, executive vice president of Project & DevelopmentServices for Jones Lang Lasalle.
The panelists virtually all agreed there is not likely going to beconstruction of any new speculative high-rise office buildings in the Atlantamarket that stretches from downtown to Buckhead anytime in the very nearfuture.
The Jones Lang Lasalle report pointed out that 9 million square feet ofpremium office tower space was added in the market between the first quarter of2000 and the fourth quarter of 2009. From the first quarter of 2010 to thepresent, there has been zero square feet of premium office tower space added.

Pope & Land's Kerry Armstrong

The panel did agree that there will be some build-to-suit office spacedevelopment and some is going on right now on Peachtree Road in Buckhead. And,most of the panel agreed they were focused on urban infill projects—a lot ofthose in multi-family and student housing projects.
Kerry Armstrong, with Pope & Land development company, said, “Italways gets down to between supply and demand. While there is adequate supply,there also is demand. Existing supply not always meets the needs of the demand,”he added.  
“Need to keep in mind timing. Bad things can happen really quickly,”Armstrong explained. “Good things happen slowly.”

Michael Cohn of Cousin's

Michael Cohn, executive vice president of Cousin’sProperties, said Atlanta has beenthrough many cycles before. He explained that unlike the last cycle—whichcreated a "perfect storm"with the recession and over-leveraged properties—this recovery cycle has moreequity involved in deals.
"I think the next cycle has a real opportunity to be a healthier cycle,"Cohn said, but added that developers can still "make mistakescreatively."
Asked what sub-market the panel felt would show the most growth mostquickly, Bill Halter, director of Corporate and OfficeDesign for Cooper Cary, seemed to stun most of the other panelists by calling downtownAtlanta "the next big submarket."

Cooper Cary's Bill Halter

He cited its access to transit, student base, andnew housing and amenities,especially with the Georgia Aquarium and other attractions such as the World ofCoke and coming Civil Rights Museum.
"I think Downtown is what Midtown and Buckhead have been developingfor the past 20 years," Halter explained. The infrastructure has beenthere all along. One big hindrance, he added, is the state of the city of Atlanta's public K-12 education, which could keepfamilies from taking root in the city district.
Armstrong strongly disagreed.  "I think the perception of downtown… feels a lot like a college or government.I love downtown. I just don't think it's going to be the nextone."
Armstrong also said big development projects may be a thing of the past…atleast for now: "I think the days of us trying to put together a big mega project are on hold, at least for a long time.The last thing you want to see is buying a big piece of land, building onebuilding and then it stops and is vacant.”
Conor McNally,Chief Development Officer for Carter, said capital is returning to Atlanta to invest in apartments. He said  it's one of two types of projects that can get construction financing.  

Carter's Conor McNally

"Terms are different than they were in the last cycle, but that's prudent foreveryone," McNally stated. Where capital has been hesitant about Atlantain the past few years, "Atlanta, from a multifamily perspective, isstarting to come into its own now,” he added.
McNally said the Gen Y macro trends are driving development. “The seedsof urban rejuvenation began in the mid-2000s with the condo market,” McNallyexplained. “The outlook is good. The shift from home ownership to rentals isstrong for infill development.” He said Carter is concentrating on multi-familyand student housing projects.
McNally explained that universities must have great facilities tocompete today. Only way to fix decrepit living quarters at universities with limitedcapital is to bring in private investment. He said the trick is the balancebetween controlling and making money.

Georgia Tech's Michael Black

Michael Black, executive director of housing at Georgia Tech, said 80percent of the student housing at the college is apartment-style. He let slipthat the former Roosevelt House site on Tech's campus will become an 11-story mixed-use student housing complex with street-level retail.  Adding up to 500 beds, the project will helpTech top 9,000 on-campus beds.
Black said a housing crunch on campus could force the university to hold alottery forfreshman housing next year.
Cousin’s EVP Cohn said the challenge with student housing projects is “gettingthe university to be a partner.” He said that is essential to being successful.But, he agreed, “there is business to be done.”
Black added that an essential item is “be a good listener. One size doesnot fit all. Different universities have different personalities.”
Jeffrey Fuqua, principal of Fuqua Development, was quick to respond to aquestion from the floor about the impact of newly formed cities have on gettingdevelopment projects done.

Jeffrey Fuqua, principal of Fuqua Development, answers
a question from the audience some 300 attendees. 

“It is really scary what is going on” with the development of all thenew cities, Fuqua said. “DeKalb County’s tax base has been decimated.” Formerlyas president of the Sembler Co. Fuqua developed the large Town Brookhavenmixed-use project on Peachtree Road in what was then unincorporated DeKalbCounty and now is the new city of Brookhaven.
Fuqua also said that the other major hindrance in getting projects doneis that the neighborhood activists now have such a direct impact ondecision-making. “If people oppose you, they can hit a button on the computerand reach 8,ooo friends,” he said in what may have been a reference to theproblems he encountered recently in Buckhead with neighborhood opposition to aplanned development in the Lindbergh area of south Buckhead.
Pope & Land’s Armstrong said all the new cities “complicates theprocess” for developers. “Each city has its own standards,” he explained. “Itis tough to have relationships….more complicated and fluid for developers.”