Hat’s off to my 10th grade economics teacher Coach Gann at Crestwood High School, the theory of “supply and demand and the invisible hand” is playing out in extremes in the metro area’s office market.
It’s a simple theory that people sometimes forget. But it means if few people want something that is easy to get, the price of that thing will go down. It also means if many people want it, but it is hard to get ahold of, the price will go up.
In a report from the local commercial real estate news outlet Bisnow, office rent rates in the metro area are on track to log the highest ever average per-square-foot price for Class-A offices, according to research compiled from Transwestern. As of August, office buildings throughout the metro area traded for an average of $244.30 per square-foot, up from $229 the year before, and up 28 percent since 2014.
Metro Atlanta is simply one of the hottest job markets in the country. Since 2010, the metro area has posted more job gains every single month than the same month the year before, and as a result, its population has grown by nearly 98,000 new residents a year, according to the BisNow article.
To meet the demand, developers are seeking out opportunities to build new Class-A office space. Massive projects are going up around Atlanta including the State Farm campus in Dunwoody that will add around one million square feet of office space, a high-rise in Avalon in Alpharetta, several high-rises in downtown Atlanta and a tower in The Battery in Cobb County.
More and more, developers seem to be searching out locations that mix in the office use with other retail and residential uses. Gone are the days of the office campus. It’s a competitive job market right now with unemployment at a historic low and employers are fighting over employees. To maintain their workforce, they are looking to pay higher rents just for the opportunity to be in a place that their employees would think of as cool, or interesting to be around.
As an example, the rents in the Class-A offices that already are built and are being built in Avalon in Alpharetta are as high as average rents for the same in Midtown. Employers are paying a premium for choice locations where employees can walk out and enjoy lunch or happy hour.
A development is about to get started near Canton Street in downtown Roswell that will include office space. The office space numbers are fluctuating, but from what I hear the interest has been higher than what was expected.
When there is such a strong demand and this low of supply, the market tends to try to fix itself. Employers and property owners start to find creative solutions. North Point Mall in Alpharetta has, like most indoor malls in the metro area, seen its better days as a strict retail destination. As such, the owner is changing and mixing the mall’s uses. It tore down the Sears and is putting up a park, trails and apartments. Inside, some of the retail spaces have been converted to temporary work spaces.
A commercial realtor I was talking to last month told me he was working with a client who is about to strike a deal with a property owner who has a failing retail strip-center. The strip-center is near a park and several small restaurants and they are going to convert the failing spaces into open, more modern-looking office spaces.
As part of the deal, the property owner may agree to build a small parking deck in the large, open parking lot and open up the rest of the parking lot to create a village-type atmosphere.
The other saying I always liked, which is something my father used to say, is that necessity is the mother of invention. In today’s office market environment, I’m anxious to see what will grow out of it.
Geoff Smith is a mortgage banker with Assurance Financial focusing on residential home loans for refinances and home purchases.
*The views and opinions expressed in this column do not necessarily reflect the views of Assurance Financial Group