The U.S. government's plan to jettison federal offices in Atlanta could harm the city's efforts to revitalize its commercial real estate (CRE) sector, according to a new report published by Anderson Bauman Tourtellot Vos, a turnaround management firm.
The report, titled ‘Cloud on the Horizon: Government Debt Reduction and the Atlanta Commercial Real Estate Market,’ determined that the U.S. government owns or leases at least 8 million square feet of office space in the Atlanta region. Excluding government-controlled space in the Washington, D.C., region, the state of Georgia contains the fifth largest amount of government real estate.
However, in May, the White House mandated reduction of real estate-related costs to the government across the country. Approximately 2.2 million square feet in leases belonging to the federal government will expire between now and 2015, and the report warns that this will have a harsh impact on Atlanta's commercial property sector.
‘The government cannot continue to do business as usual and will be forced to take substantial measures to reduce debt, increase revenue and cut costs,’ says John Connor, principal of Anderson Bauman Tourtellot Vos. ‘If the government reduces its footprint in metro Atlanta by 25 percent over the next three years, it will take 1.2 million square feet of occupied space from the market. Any way you spin it, this will exert downward pressure on lease rates and further depress sale prices, likely pushing back recovery for up to five more years.’
Connor recommends that the federal government consolidate leases that are expiring in the next few years and consolidate the space that is leased into fewer buildings. The weak lease market makes it an opportune time to negotiate for office space, he adds.
The full report is available online.
