Sublet Space is on the Rise in Metro Atlanta

While Nowhere Near Great Recession Levels, Sublet Space Has Increased Each Quarter This Year

By Trenton Turner
CoStar Analytics

July 20, 2020 | 12:12 P.M.

Heading into the coronavirus pandemic, Atlanta’s office market was enjoying years of elevated rent growth and relatively high occupancies. But cracks are beginning to show in the city’s office sector. While the city has scored a few major wins in recent months, most notably, Microsoft’s lease at Atlantic Yards, sublet space is on the rise in metro Atlanta, a sign that the market could soften in the coming quarters.

Around 4.2 million square feet of space is available for sublease, representing around 1.32% of total inventory. Nearly 1 million square feet of that sublet space has come on line since the end of 2019. Much of the space to hit the market was in the second quarter, coinciding with the COVID-19 shutdown and the loss of 300,000 jobs in April, in metro Atlanta.

Broken out by submarket, Central Perimeter comprises the most sublet availability, with almost 1.2 million square feet, or roughly 27% of total sublet space in the Atlanta market. Furthermore, sublet space accounts for 3.2% of Central Perimeter’s total inventory, the most among any district in Atlanta. Some of Central Perimeter’s largest sublet availabilities involve First Data (Fiserv) and Insight Global, with the former looking to consolidate its local presence and Insight Global moving to the newly built Twelve24. While an increase in sublet availability is never a good sign for the health of an office market, many of these moves were already anticipated by the market.

With State Farm in the process of moving into its three-phase campus in Central Perimeter, the insurance giant is putting large blocks of sublet space on the market. One such space is in Johns Creek where 133,000 square feet of vacant sublet space is on the market in North Fulton/Forsyth County. As a result, the submarket now has the second-most sublet space in metro Atlanta.

Buckhead has also seen large chunks of space go on the market for sublease recently. Several law firms listed sizable spaces on the market including Weismann and Aldridge Pite towards the beginning of the year. More recently, several small to mid-sized firms have listed space for sublease including Residential Capital Management at 3630 Peachtree and Mobilitie, at the Prominence Buckhead.

While Atlanta’s office market has held up relatively well as a whole since the onset of the pandemic, areas with a higher concentration of sublet space could start feeling the brunt of the impact if the situation turns south. If cases continue to rise and the pandemic persists into the fall and winter months, the economic situation may cause financial hardship for tenants. This could make it more difficult for firms to meet rent payments, and cause many companies to rethink their commercial real estate footprints, leading to a further increase in sublet availability

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