OFFICE MARKET TRENDS The year ended on a strong note with fundamentals pointing to reasons to be optimistic about the office market entering 2025. More aggressive RTO policies by major tenants in Buckhead and Midtown, including Amazon and AT&T, is expected to spur more foot traffic in 2025. Absorption for Q4 was overall negative but relatively modest (-127,298 s.f.), the least negative quarterly absorption in two years. As observed in prior quarters, and with no end to the flightto-quality trend in sight, Trophy assets recorded positive absorption (+99,738 s.f.) in contrast to their Class A and B counterparts. Inventory did increase this quarter but only by 0.1%, as there was 835,000 s.f. of new deliveries and slightly less (648,000 s.f.) removed from inventory. The three new office deliveries were all concentrated in Midtown, which has seen the most development activity of any submarket for over a decade now. This year, Atlanta observed a multitude of new uses planned for office conversions/demolitions including apartments, schools, industrial, and senior housing. Sublease availability dropped to the lowest level in eight quarters, falling to just under 4.0% of inventory. Over 85% of sublease space that came off the market was subleased (not withdrawn or expired) showing the strong demand for moveATLANTA (BUCKHEAD AND MIDTOWN) • Vacancies in Buckhead and Midtown continue to surge as development is concentrated in these two markets and downsizing continues among technology tenants. • 2024 ended with reason to be optimistic about the office market heading into the new year. Headlines include strong leasing activity, slowing occupancy losses, increased rent growth, and declining sublease availability. • The shifts on the supply side are continuing to play a noteworthy role in the Atlanta market. After shrinking last quarter, existing inventory increased as a wave of new deliveries outweighed converted/demolished properties coming out of current stock. • The addition of sublease space continued to decline, and this, coupled with a growing trend of tenants listing only part of their space for sublease, shows true slowdown in this subset of availabilities. in ready spaces. Also, several of the larger blocks added to the sublease market this quarter were only a portion of the tenant’s space, indicative of the need for retaining some office space for employees. OUTLOOK Looking ahead, we expect the strong office demand and uptick in large transactions (average deal size is up 9.8% QoQ) to continue into the new year as Atlanta remains a favorable market. Asking rents saw the highest quarterly increase all year in Q4 (up 50 bps), and that healthy rent growth should continue. We can expect market conditions to stabilize towards the latter end of 2025 and into 2026, contributed by supply constraints putting downward pressure on vacancy as quality relocation options dry up. More aggressive RTO policies by major tenants in Buckhead and Midtown, including Amazon and AT&T, is expected to spur more foot traffic in 2025. MUST'S SUBMARKETS Net absorption and overall vacancy rates Gross leasing activity Rental rates and going-in yields CBD Class A cap rate (%) Cap rate Asking rent 1.5 1.0 0.5 0.0 -0.5 -1.0 9% 8% 7% 6% 5% 4% 35% 30% 25% 20% 15% 10% $50 $45 $40 $35 $30 $25 $20 2010 2010 2014 2014 2018 2018 2012 2012 2016 2016 2020 2020 2022 2022 2024 2024 Net absorption (m.s.f.) Total vacancy (%) Buckhead & Midtown Rest of Atlanta Overall market statistics Forecast 2024 net absorption (s.f.) -2,455,638 Under construction (s.f.) 474,000 Total vacancy (%) 26.7% Sublease vacancy (s.f.) 3,452,606 Asking rent ($ p.s.f.) $33.65 Concessions Stable 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 9.0M 8.4M 5.1M 7.1M 4.0M 4.0M 5.8M 6.2M 5.8M 5.6M 3.8M 3.6M 3.4M 2.3M 3.7M 2.2M 2.6M 2.8M 3.0M 2.1M ANNUAL REPORT 2024 | 43
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