The pandemic was not kind to certain sectors of the commercial real estate landscape.

Restaurants and small businesses shut down for a time, with some going out of business entirely. In some places, investor interest in office buildings, warehouses and retail centers dried up. Their vacancy rates leaped, and sales volume plummeted.

Then there’s the Peachtree Corners story, which is noticeably different.

Different approaches

“There was only a mild slowdown during the pandemic,” said Jennifer Howard, the city’s economic development director. “Our city is unique. We have taken a couple of different approaches to economic development here.”

That includes policy changes enabling mixed-use property developers to enhance their projects. An overlay district was created, and redevelopment incentives were put in place, under which developers can earn credits for greater density in return for adding such things as public art and trails and vehicle charging stations. Additional city enhancements have included partial support of the Curiosity Lab vehicle testing track, a startup incubator and coding school.

“I think you need to look at the fact that the city manager and the mayor and city council have been very welcoming to businesses,” said Brad Kuehn, President of Atlanta Office Realty, Inc. He gives additional props to the city’s emphasis on amenities such as parks and trails, walkability and Town Center.

What city officials see as a downturn instead of a disaster during the heart of the pandemic is borne out by a look at the numbers.

Take sales volume, for example. Howard quotes figures from the CoStar real estate information company. Total sales volume was around $160,000,000 in the first quarter of 2020, then it fell off as low as $25,000,000 the last quarter of the year, but it has quickly rebounded to $170,000,000.

Projects in the pipeline

Transactions happened and leases were signed even as COVID cases rose and many people stayed hidden away. “We had been pushing so much energy into the pipeline that even when things came to a halt, we still had projects moving forward and filling the pipeline,” is how Howard explained it.

One such “pipeline filler” was an investor group from Atlanta purchasing a 1980s-era strip shopping center at 7050 Jimmy Carter Boulevard, said Elliott Kyle, Vice President with Skyline Seven Real Estate.

He said that buyers backed off deals like that for a few months during the worst of the Coronavirus, but he added that’s been over for a while.

“We got some really good interest on it,” he said of the shopping plaza anchored by a closed fitness center, which he said would ordinarily be a tougher sell. A recent leasing flyer on the property shows well over half the spaces have been leased.

“It’s the quality properties that are getting snapped up quickly,” Kyle said. Those that flunk the quality test or are overpriced are the ones that are languishing, he indicated.

Readily available cash and fears about the near future are driving many deals, he said. “I think what it was, was that people were sitting on money (during the pandemic) and they needed to get a return,” Kyle maintained. Another factor is the prospect of interest rates rising and buyers wanting to lock in a favorable rate now.

Another signature project that developed as COVID raged involved healthcare staffing firm Soliant Health, which moved its headquarters to Peachtree Corners. They announced in August that they had signed a lease on a building at 5550 Peachtree Parkway in Technology Park. Some 400 jobs came with that.

Not sitting on its laurels for long, the firm announced a headquarters expansion in June and the addition of 200 more to the workforce.

Downward trend in vacancies

A number of other real estate transactions have come to a revitalizing Tech Park, including post-acute-care tech solutions firm Brightree renovating a 1970s building and moving its home base there. The deal finished in December of 2019, just before Coronavirus began its deadly spread.

Commercial real estate observers said transactions like the above demonstrate a market that ranges from “stable” to “active”, depending on who you talk to. Another sign of that is a vacancy rate that has steadily trended downward since the city incorporated nine years ago.

Again, with a nod to the Costar service, Howard said the current office, retail and industrial vacancy rate in Peachtree corners is 13.7%. She said that number edged up modesty during the pandemic to 14.5% and then dipped to 12.75% for a time.

“The vacancy rate actually decreased during the pandemic because of projects in the pipeline,” she said.

One factor cited in connection with vacancy rates is a number of smaller entrepreneurial firms locating in Peachtree Corners, plus larger corporations beginning to look at moving here from Atlanta addresses.

“Gentrification is happening there and as it relates to say, Buckhead, it’s a huge discount for an occupier,” said commercial real estate firm NAI Brannen Goddard Senior Vice President Rusty Bennett, citing Peachtree Corners lease rates that are about half of that of spots like Midtown and the Ponce City Market neighborhood.

Warehouse and office space

Industry executives also said that the warehouse piece of the commercial market is going very well around the metro area partly because of a tightening supply and also due to a thriving logistics marketplace segment. They maintain that a portion of that is due to conversion of such one-story warehouse facilities to office space.

Then there are projects pulling office space off the market and paring down the supply in Peachtree Corners, such as adaptive reuse ventures. One is at 5720 Peachtree Parkway, where an existing several-story office building and some one-story business condos will become a mixed-use development with a large residential presence.

City council member Weare Gratwick sounds a cautionary note about that trend involving aging commercial buildings, however. “Speaking as a council member, our challenge is balancing how much adaptive re-use of office product we should have against preserving office space,” Gratwick said.

He says while such factors as workers wanting to settle closer to their jobs is a driver, “the challenge is to balance that, because once you lose that office space it’s gone forever.”

Another factor cited is the city’s much-lauded Curiosity Lab, a public-private partnership aimed at attracting technology businesses and helping them grow. Kuehn, for one, thinks those companies will pull together and incubate, and that once they can stand on their own, they’ll go find office space.

“And many of them will stay in Peachtree Corners,” he maintained.

No sign of shortages

Even with absorption happening, local realtors and industry observers don’t see any kind of shortage of office space developing in the city. On the other hand, at least one observer of the market doesn’t foresee significant additions on the supply side.

Said David McEachern, the local director at Keller Williams Chattahoochee North, “what we’re not seeing is the development of new shopping centers or office buildings because there’s enough supply right now, even in the case of warehouses. That will help constrain supply to a certain extent.”

Meantime, he and others said investor interest is relatively strong at the moment, citing his listing on Holcomb Bridge Road for a 10,000 square foot office building. He said quite a few potential investors have come calling,“I personally think it’s a good solid market and we’re not going to see a bunch of new buildings created,” said McEachern. He and others point out that Peachtree Corners is, for the most, part built out.

There’s speculation within the industry on how this stew of factors will impact lease, rental and per-square-foot sale pricing. Bennett thinks that the combination of property being absorbed and solid interest on the part of investors and companies is contributing to higher lease rates.

Howard, with the city, has some numbers that appear to back that up, saying that there’s been a steady increase in rent prices in the commercial market, on the order of 2% to 4% a year. She said that last year was a bit slower than the long term, with growth of 2¼%.

Grappling with a new normal

Kuehn indicates the above numbers are important because “there are still people out looking to buy a building, but the majority of offices are leases.” When those leases come due over the next few years, a wild-card factor in all this is how companies might reduce their office space, having seen that at least some workers can do their jobs from home.

Local real estate people say the jury’s still out on that and probably will be for a few years. Said McEachern, “What will be interesting to see and, I think will get filtered out, is as those leases start to expire this year, next year and three to five years out, is what they do with their existing space. I think that’s going to constrain additional office building because we will probably see some reduction of square footage with people working at home more.”

Others foresee a somewhat different direction, with greater movement of employees back to their cubicles. “My gut feel is that, over time, people are going to gravitate being back more in the office than remotely.

It might take a couple of years, but I think that’s ultimately where we’re going to end up,” said
Tom Rhodes, partner and chair at Meadows and Ohly, a Peachtree Corners real estate firm specializing in healthcare facilities.

Gratwick — and others in the business world — point out that those working on their computers from home largely lose their shot at being mentored, building personal relationships and collaborating face-to-face with coworkers.

With the remoting trend, some think companies may reduce their square footage while having workers come in a day or two a week, sharing their space and working from home otherwise. Others say the trend toward open-plan office space will reduce square-footage needs.

As to what impact this would have on lease, rental and square-foot pricing in sales, it’s too soon for some to say, but Rhodes thinks it could force lease rates downward.

“Maybe we’ll see hoteling of office space,” he said. “It might not necessarily reduce square footage, but it’ll mean a reconfiguring and that space won’t increase as a firm grows.”

Up and coming projects

It’s safe to say Peachtree Corners officials are keeping that and other trends in mind as they celebrate new commercial projects coming online, one of them an Amazon logistics center at 4925 Avalon Ridge, another deal which developed during the worst days of COVID. The Black Creek Group real estate management firm purchased the property one year ago, leased it out to the retail giant and trucks are expected to be rolling this fall.

Other announcements may well be coming. McEachern tells of getting a call from a software company owner in the Peachtree Corners area. He says he and three others are looking to spend $2,000,000 to $5,000,000 on commercial locations.

The city’s live-work-play emphasis and focus creating jobs in tandem with places for workers to stay here has seemingly worked well to this point. Said Howard, “Our approach has been focused on innovation and fostering companies and on economic development through community development in creating a place where people want to live.”