The trickle-down impact of the nearly year-old coronavirus pandemic is being felt everywhere, including on Atlanta’s office market.
“The office market is screwed,” according to Brian Gomez, vice president of commercial development for The Management Group. It mostly builds multi-family housing, but also manages office space. “Many tenants throughout Atlanta realized that they don’t necessarily need office space” because employees are working from home and meeting via Zoom, he said.
To retain tenants, his company is giving rent relief in the form of two to three months’ free rent. Some tenants needed that help at the beginning of the pandemic last March, while others are only needing it now. In either case, the result will be an extension of their lease for those months at 105 percent of the rent. “It’s like giving them a loan.”
Gomez said he hasn’t seen much downsizing, but he has seen some tenants just walk out of their lease contracts. “Some are personally affected by the pandemic, leaving work to take care of parents, themselves or kids who are not in schools,” Gomez explained.
“Even before the pandemic, it was tight for many tenants; they had a hard time making rent. We understand that you can’t squeeze blood out of a turnip. All we can say is that we’ll keep their security deposit.”
Gomez believes there will be a long-term impact of the pandemic on the office market. In some cases, office space may be converted into condos. In any case, he doesn’t see any new building of office space in the near future.
According to Gomez, another downside of losing office tenants is that the properties are harder to manage. If there are pipe leaks in a building, tenants would notice and notify him. Empty office space also attracts squatters. “We’ve had an influx of homeless people breaking into our office space,” he said. “It’s harder for me to secure the building.”
Steve Selig, president and chairman of Selig Enterprises, who has been active in the real estate market since 1968, says he’s still positive about the Atlanta office market. “We haven’t seen much change as of yet,” he told the AJT. Although there might be fewer employees working for a tenant, they will require more space because of social distancing. Pre-pandemic, about 160 square feet per person were planned. Now it will be 175 to 190 square feet per person, the company estimates.
“So, the net effect will be less than feared,” Selig said.
Selig Enterprises is just completing an office project in Midtown at 1105 West Peachtree that is completely leased up, he said. Although the company hasn’t started any projects since the pandemic, he believes that when they do, they will need to be pre-leasing up to 50 percent. “There will be no more spec building,” he said.
Another change Selig is seeing is a demand for more green space and balconies. “People are looking for more amenities,” he said.
The company hasn’t experienced as many rent collection problems in its office portfolio as it has in retail, he added. Office rents have remained flat during the pandemic, but he expects a slight increase in rents for new space. “For older buildings, rents may be about the same, or a little less,” Selig predicted. “But I’m still bullish on Atlanta.”