ZOMBIE PROBLEM l

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A h l o J X O A

Midtown Atlanta is 55 stories, meaning Atlanta has five (5) Bank of America Plazas of vacant space in this set of buildings. These buildings face real trouble, a lack of income, obtaining financing for retrofits and refinancing will present challenges. With net absorption just under 1.1 MSF last year, these 50 buildings alone have almost a six (6) year’s supply of office space.

However, the vacancy rate does not tell the entire story. Let’s also examine the availability rate, which not only encompasses vacant space, but includes sublease space and space landlords are advertising because they expect it back from tenants. The Atlanta availability rate went from 22.4% Q4 2019 to 30.9% Q4 2022. The spread between Atlanta vacancy rates and availability rates has never been larger, now at 7.7%. This is partially because the sublease inventory has grown to 7.5 MSF, which is strongly related to tenants giving back space or not renewing leases.

Not all office buildings are created equal; there is an underlying current of problem office buildings weighing on the market… Zombies. 50 office buildings around Atlanta are 100% available today totaling 3.47 MSF of vacant space. In addition there is approximately 3 MSF of additional “ghost vacancy” in spaces that are either available for sublease or are leased but not occupied; prudent landlords are actively marketing these spaces for lease. If the average building floor plate is 24,000 SF, the 6.5 MSF is equivalent to 270 office building floors of space to lease. For example, Bank of America Plaza in

Another troubling tranche of the office market are buildings that are between 50% to 98% available. They comprise 126 buildings totaling 23.9 MSF. 43% of this space is already vacant, which is 10.3 MSF. Another 5.4 MSF of space is listed as available, giving this set of buildings an average availability of 65.9%. These buildings have 15.7 MSF available space, equivalent to 655 floors of office space leaseable today or another 12 Bank of America Plazas. This group has some wiggle room as they have some income; however, convincing lenders to retrofit or refinance will be difficult, depending on the project.

In total, the Zombie office buildings in Atlanta make up 22% of all buildings in the market (179) and account for 21% (30.8 MSF) of the total rentable office space in Atlanta. They comprise 40% (13.8 MSF) of all vacant space and 49% (22.4 MSF) of all available space in Atlanta.

If you remove the Zombie buildings from the statistics, the remaining 78% of office space in Atlanta has a vacancy rate of a mere 17.7% and an availability rate of 20.2%. Oddly, these numbers compare very favorably to the prepandemic market, with percentages at 17.3% and 22.4%, respectively.