Atlanta’s creative office demand leads the way, rent growth resumes

Demand

Creative office demand fared better than traditional office during the pandemic era: the creative market experienced only one quarter of negative absorption from Q2 2020 to present, compared to six quarters of negative absorption in the same time frame for the overall office market. As a percent of inventory, the difference is especially dramatic: creative office absorbed 20.1% of its current inventory from Q2 2020 to present, compared to -1.3% for the overall office market.

Rents

Atlanta’s direct asking rates remained virtually stagnant from Q2 2020 to Q3 2021. Since, we saw a slow but steady increase in rates – the overall office market grew 3.9% over the past four quarters, while urban Class A rates grew 2.5%. Conversely, within this same time frame, creative office asking rents exploded, growing at 13.6% over the past four quarters. This dramatic rent increase was a combination of enhanced demand and improved product quality.

Quality

In 2013, the entirety of the creative office market was adaptive re-use and historic product, with an average size of 74,590 s.f. and little backing from institutional capital. Today, new construction represents 40% of the creative office market, often developed using institutional capital and commanding top-of-market rates. These projects (such as Allen Morris Co.’s Star Metals and New City’s FourthWard) provide the creative atmosphere of an adaptive re-use project with the fit and finish of an institutional ground-up development, allowing them to ask top-of-market rates pushing well into the mid- to high-50’s on a gross basis – and rising.

Outlook

This recent explosion of successful institutionally developed creative office is showing little signs of slowing. There are currently 14 proposed creative office developments totaling over 2.2 million square feet in the Atlanta office market; over 1 million of this will be developed by well-established national institutional firms.