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Commercial Office Comeback?
Weak Market has Shown Some Signs
of Life Lately
By Debra Wood
A handful of construction firms has broken ground on vertical
office buildings in Atlanta and Orlando as developers slowly
venture back into a virtually stagnant marketplace.
"In the past two or three years, there's been such a
glut of office space," said Carl Hair, senior vice president
of Hardin Construction Co.'s Atlanta office. "We think
it will come back over the next couple of years, but not as
strong as five or six years ago because everyone seems more
cautious."
Typical of the type of office-market construction under way
are two current Hardin projects. The Southern Company of Atlanta's
decision to seek space for a new 130,000-sq.-ft. headquarters
was enough to convince Barry Real Estate Cos. of Atlanta to
develop the 15-story One Centennial office complex in downtown
Atlanta.
The post-tensioned concrete building has a seven-level parking
garage topped with eight floors of office space and will open
in October 2005.
In Orlando, Hardin broke ground in July on CNL Center II,
a 12-story, 270,000-sq.-ft. office tower for CNL Financial
Group of Orlando. CNL will occupy at least 85,000 sq. ft.,
with the law firm Akerman Senterfitt leasing 80,000 sq. ft.
It is about 65 percent preleased.
"The catalyst for our building is the growth of our
company," said Jay Berlinsky, executive vice president
of CNL Realty & Development Corp. of Orlando, adding that
outside of his company's needs, he does not see a strong demand
for office space.
CNL Center II will complete the block's master plan, which
includes CNL Center I and Orlando City Hall, all together
about 850,000 sq. ft. of office space connected by pedestrian
walkways to an adjacent parking garage and an underground
tunnel system. Berlinsky called it the highest-density block
in the downtown Orlando area. CNL plans to move into the post-tensioned
concrete CNL II in December 2005.
Building on speculation is a thing of the past, giving way
to long-term, major-tenant commitments and federal buildings
with public-safety improvements.
"I have not seen many high-rises in quite some time
without a lead tenant taking a major amount of space or a
build to suit," said Mark Jones, Carolina division manager
for Brasfield & Gorrie in Raleigh, N.C.
Brasfield & Gorrie recently completed the 19-story Two
Progress Plaza in Raleigh. The new 380,000-sq.-ft. Progress
Energy headquarters building, with 12 stories of office atop
a parking garage, has a poured-concrete frame.
Preleasing Atlanta's Tall Tower
"Preleasing is a market reality given the kind of environment
we are in with vacancies," said John Heagy, vice president
of marketing for Hines of Atlanta, an international real estate
firm. "There's an unprecedented amount of vacancy across
this country that was driven by the collapse of the tech industry
and effects of Sept. 11. It has taken the market a good three
years to show any sign of an up-tick or recovery."
Hines is developing 1180 Peachtree, a 41-story, 670,000-sq.-ft.
office tower in midtown Atlanta. Law firm King & Spalding
LLP will lease about 70 percent of the space. Pickard Chilton
Architects of New Haven, Conn., designed the structure as
a completely green building with many energy-efficient features.
Turner Construction Co. in Atlanta is building 1180 Peachtree,
which will open in April 2006. Paul Little, vice president
and general manager of Turner, said this may be an opportune
time for development, with some companies, such as King &
Spaulding, wanting to locate in signature structures and willing
to relocate to achieve operational efficiencies.
"Vacancy rates are still fairly high, but I think what
we are seeing is the end of some 10-year leases for buildings
that were done back in 1997," Little said. "Leases
will come up in 2007, and you have to start a building pretty
soon for tenants that want to move out of existing buildings."
Little added that he expects the strength of Atlanta's workforce
and the quality of companies located in the city will lead
to continued economic growth, especially in Buckhead and midtown.
Experts agree that the slight upturn in the office market
relates to job growth. Without new jobs the need for additional
space does not exist.
Heagy said that at one point, Atlanta added at least 65,000
jobs annually to its workforce. In 2002 and 2003, it lost
jobs. And this year, it has returned to the positive with
about 20,000 new hires.
"It is so driven by economic-development groups,"
said Steve Rivers, senior vice president of Hardin Construction's
Orlando office, who touts Orlando's achievements in recruiting
new high-tech business. "It's incredibly competitive,
and the success of economic-development groups drives the
need for large office space."
Economic Development and Mixed Use
Orlando's Downtown Development Board/Community Redevelopment
Agency has taken an aggressive approach to bringing projects
to its central business district. The city provided $22.5
million in incentives to secure Premiere Trade Plaza, formerly
called the Plaza at City Centre. The $140 million office,
residential and retail project covers two city blocks.
More than half of the office condominium units at Kuhn Management
of Orlando's Plaza project were sold before the autumn groundbreaking.
Brasfield & Gorrie LLC of Orlando will build the 12-
and 17-story office towers, which will rise above five levels
of parking and two stories of retail and theaters.
Developers seem apt to include office buildings in mixed-use
developments. Hines' 1180 Peachtree is adjacent to Atlanta
Symphony Orchestra's planned Symphony Hall. Hines purchased
the tower's two-acre tract from the Woodruff Art Center. The
symphony will share the office building's 14-story parking
garage. 1180 Peachtree also includes a three-level, 35,000-sq.-ft.
retail complex.
"Most developers, when they can, like to couple development
with some other component, complementary use or amenity, meaning
hotel, residential or retail," Heagy said. "Our
project in Coral Gables, we built in conjunction with a residential
tower."
Hoar Construction LLC of Orlando recently completed 2525
Ponce de Leon in Coral Gables for Hines. The 12-story, 250,000-sq.-ft.
office building kicked off development of an entire city block
that includes condominiums, parking and a public garden.
Heagy said there's a trend in the Southeast and nationwide
of people returning to city life and a decrease in suburban
sprawl. Commercial follows residential back to downtown.
"This is good for our industry because it allows us
to use sites that we might not have considered for development,"
Heagy added. "All of a sudden, they become unique and
strategic."
Security in Public Works
Another warm spot is federal projects. Skanska USA Building
of Atlanta is constructing a new 12-story Centers for Disease
Control and Prevention headquarters and emergency operations
building at the agency's Atlanta campus. The $81 million,
360,000-sq.-ft. structure should be complete by mid-2005.
"The federal government market has new projects just
to meet highly enhanced security requirements, even in its
leased facilities," said Mike Miller, vice president
of business development with Skanska in Atlanta. "There
are setback requirements and secure and controlled access
to buildings."
The new structures offer control of packages and people.
Miller said that major corporations, such as CocaCola, favor
a similar approach, building shipping centers to accept and
scrutinize incoming packages and lobbies adjacent to rather
than under a high-rise building.
Light on the Horizon
"There's some new activity particularly in the Buckhead
area of Atlanta," said Turner's Little, who is pricing
three projects in the vicinity. He said that perhaps two of
the buildings will ultimately move forward, including a 31-story,
500,000-sq.-ft. office tower with retail space announced in
October by Cousins Properties of Atlanta. The site is part
of a 10-acre master plan that includes retail, residential
and additional office.
"They are a large and well-financed REIT," Hair
said. "They have the wherewithal to stay in and pull
it off and have a great building in a great location."
In Orlando, commercial developer Lincoln Property Co. of
Orlando has joined forces with Dynetech Corp. of Orlando with
plans to build a 27-story mixed-use, high-rise downtown that
will serve as Dynetech headquarters. Downtown developers Michael
Murray, Craig Ustler and Phil Rampy also are working with
the city on a mixed-use high-rise.
Further south, CRT Properties of Boca Raton and The Related
Cos. of New York have announced plans for West Palm Beach's
first new office tower in 15 years. The plan calls for a 20-story
office tower at Related's 72-acre mixed-use CityPlace development.
While the office market has remained slow, some optimism
persists. Stoked by public money, community pride and a gradual
improvement in the economy, developers are starting to tread
softly back into the office sector.
"It's certainly better than last year," Little
said. "Three years ago, it was pretty well at the bottom,
and things are starting to improve."
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