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Bright Development for Downtown Atlanta

When utility powerhouse Southern Co. announced in late January that it had completed a deal to keep its headquarters in downtown Atlanta, Mayor Shirley Franklin and business boosters hailed the decision. Headline writers at The Atlanta Journal-Constitution declared the deal a “coup for downtown.”

But that's only half the story. Southern's decision to relocate its headquarters will leave a huge hole in Southern Company Center at 270 Peachtree Street, its current home. Southern occupies about half of the 330,000 sq. ft. building. Moreover, 270 Peachtree is losing its marquee tenant just as its neighbor, the newly renovated tower at 260 Peachtree, is gaining traction after more than two years of scouring for tenants.

This is all happening against the backdrop of announcements by law firms King & Spalding and Powell, Goldstein, Frazer & Murphy that they will leave the CBD for Midtown.

It could have been worse. Southern also considered moving its corporate offices and some 400 employees just up the road to Midtown Atlanta. But in the end, Southern signed a 12-year lease to occupy half of a nine-story, 260,000 sq. ft. building to be developed by Atlanta-based Barry Real Estate Cos. Barry plans to start construction this spring and complete the building, Southern Company Center at One Centennial, by the end of 2005.

Local developer and broker Richard Bowers owns both the 260 Peachtree and 270 Peachtree towers, and his financial health is tied to downtown's success. He spent $28 million to renovate 260 Peachtree, a 27-story, 305,000 sq. ft. tower.

But instead of celebrating the relative stability of 260 Peachtree, which is about 65% leased, Bowers must scramble to find a replacement for Southern before the firm vacates the building late next year.

Mike Shelly, the well-connected downtown broker Bowers hired to market 260 Peachtree, says Bowers is focusing on filling up 260 Peachtree and soon will concentrate on 270 Peachtree. Shelly says 260 Peachtree should be fully leased by the end of the year.

“We're going to take that same leasing momentum into 270 Peachtree,” says Shelly, executive vice president at Richard Bowers & Co. The company's portfolio in downtown Atlanta still will be 75% to 80% leased when Southern leaves next year, so “it's not a big bite to swallow,” Shelly says.

Quickly replacing an anchor tenant, though, won't be easy, given the current state of the downtown office market and the emergence of Midtown as the hot and hip place for young professionals.

In 2003, downtown had negative net absorption of 381,292 sq. ft., according to Cushman & Wakefield's Atlanta branch. The overall vacancy rate increased to 20.5%, although downtown fared better than the Atlanta average of 24.9%.

However, a large delta exists between leasing activity in Midtown and downtown. Last year, more than 1.6 million sq. ft. of leases were completed for Midtown office space, reports Cushman & Wakefield. That compared to about 680,000 sq. ft. in downtown, which is a slightly larger market.

Companies are selecting Midtown despite the submarket's higher rents. The average Class-A rent downtown is $20.89 a sq. ft., according to Cushman & Wakefield. Top-notch space in Midtown rents for $25.53 a sq. ft.

Deming Fish, a director at Barry Real Estate, says the new Southern Co. building will be able to attract tenants because its larger, 30,000 sq. ft. floorplates will offer prospective tenants more efficient space and the opportunity to save on occupancy costs. Southern will reduce its headquarters space by 20% at the new building.

“Downtown is always going to be a viable office market,” Fish says. “While some big users left the market, there's been just as many that said, ‘Downtown works for me.’”

TAGS: News
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