Trading volume has slowed below the pace set over the last two years, though pricing continues to appreciate.
Over the course of the current cycle, office fundamentals have continued to strengthen thanks to a limited construction pipeline and strong job growth in the Atlanta metro. And even with office deliveries increasing, this should not result in the kind of structural danger that would spook investors. For reference, total deliveries in 2017 did not surpass the metro’s historical average, and other fundamentals like vacancy and rent growth are still solid. When also considering the projected demand over the forecast period, potential oversupply is not something that is likely driving sales volume lower. So what could be responsible for the slowdown in activity?
The slowdown in overall volume in Atlanta is reflective of a national trend and is most likely due to a lack of product. In Atlanta, there are close to 160 multi-tenant office properties over 250,000 SF. Although this subset is not the entire universe of investment-grade properties in the metro, it should serve as an appropriate sample. Since 2010, more than 80% of these buildings have been traded at least once, and with a relative trickle of new supply that drives fresh sales activity, we may be in for a period of flat volume, but steady price appreciation. To this point, one only needs to look at some of the most recent office towers to complete.
In July 2017, State Farm’s first office tower was sold to a JV between Transwestern and Mirae Asset Global Investments for $275.4 million, or $466/SF. And Tishman Speyer’s Three Alliance traded in the beginning of 2018 for a new Atlanta record of $532/SF. So while demand for these assets appears to be strong, there is simply a limited number of them available relative to preceding years in the cycle.