A notorious boom and bust market, metro Atlanta is taking its lumps these days. “Emerging Trends in Real Estate,” an annual forecast produced jointly by the Urban Land Institute (ULI) and Pricewaterhouse Coopers, recently singled out Buckhead as probably the nation's worst office submarket.
Here's an excerpt: “Four speculative office buildings open with minimal leasing interest just as unemployment reaches quarter-century peaks. Condo projects stand mostly empty up and down Peachtree Road.” Office tenants easily can find Class-A space at rent levels of 20 years ago, the report adds.
In fact, in the Buckhead/Lenox submarket, office vacancy reached a whopping 20.9% in the third quarter of 2009, compared with 14.1% in the same period a year earlier, according to New York-based research firm Reis.
That's a fact the local chamber of commerce might not want to include in its promotional materials. Only a few weeks after the ULI e-mail hit my inbox, I attended a quarterly conference hosted by the Economic Forecasting Center at Georgia State University. An accompanying report, titled “Georgia's Post-Recession Blues,” highlighted the state of the local and regional economy, and was as grim as the title conveyed.
Dr. Rajeev Dhawan, author of the report, pointed out that metro Atlanta's employment base has fallen by 7.8% since September 2007, resulting in the elimination of 192,400 non-farm payroll jobs. From peak to trough, Atlanta's job base is forecast to drop 10%, according to Dhawan. “That is severe. We didn't see anything remotely like that ever before.”
Searching for answers
How is it that a region that once was such a strong engine of job growth is now sputtering so badly? A dramatic slowdown in the issuance of building permits for new home construction is a major contributing factor. Permit issuance is down by almost 90% from peak levels of 2006, said Dhawan.
Developers have announced no new office or condo building projects, and most of the works-in-progress will be completed soon, the report noted. “I've even noticed that my architect neighbor is keeping busy with his own home improvement project rather than a commercial one,” wrote Dhawan.
Apart from government contracts and other non-traditional work, construction is in short supply. Construction accounts for just 5% of the economy's employment, but it has a big multiplier effect in dollar terms, Dhawn emphasized.
The state of Georgia has fared just as badly on the jobs front. Since September 2007, the state's employment base has shrunk 7.5%, costing 310,000 jobs. The state has experienced four consecutive quarters of job losses greater than 50,000, with every sector shedding workers except education and health care.
Dhawan forecasts that Georgia will lose 214,700 jobs in 2009 and 60,600 jobs in 2010. The tide is finally expected to reverse in 2011 with job gains of 67,100. The unwelcome streak of job losses marks a dramatic reversal from 1995 to 2000, when annual job gains averaged 114,000.
Now, the shrinking workforce is having a negative impact on the state's financial coffers. In fiscal year 2009 (July 1, 2008 to June 30, 2009), tax collections fell 10.5% from the prior year. In fiscal year 2010, state tax collections are expected to fall 14.8%.
The great disconnect
While Main Street grapples with double-digit unemployment and falling income, Wall Street appears giddy. After closing at a 12-year low of 6,547 on March 9, the Dow Jones Industrial Average has come roaring back. The Dow closed at 10,426 on Nov. 18, up nearly 60% from its March low, spurred in part by persistently low interest rates.
Stock investors also are relieved that the freefall the economy was experiencing early in the year is over and that a turnaround is afoot. Still, Dhawan said this run-up in the Dow reminds him of the bull run exhibited by the Nasdaq in 1999 at the height of the dot-com craze before the market tanked. “So, I'm worried.”
If job losses continue to mount in Georgia and elsewhere, it will be interesting to see how long Wall Street's head remains stuck in the sand.
Contact Editor Matt Valley at [email protected].