“New loft office building along Atlanta’s Beltline lands first tenant” – November 7, 2016

These headlines appeared in this morning’s Atlanta Business Chronicle.

Of course, you have to be living on another planet to ignore the loft office boom in Atlanta. It’s the “in thing”.

David Haddow, one of the best real estate consulting minds in Atlanta, recently noted in his quarterly newsletter, “Office development has been slow to bounce back following the 2007 – 2009 recession. The loft office component of Ponce City Market (550,000 square feet) is the only significant delivery in the past six years. It was very well-received, experiencing strong demand from technology and other creative companies attracted to the building’s industrial feel, Beltline location, and mixture of uses.

“Developers of a new wave of loft office projects are betting that the success of Ponce City Market was not an anomaly but  indicative of a broader shift in workplace preferences. As of August 2016, five loft office developments, totaling 525,000 square feet, were underway in Atlanta (see chart). Loft office space is not a new trend in Atlanta, but it was once an affordable alternative to Class A buildings. However, rents in this new generation of projects are generally competitive with traditional office towers and range from $26 to $34 per square foot.”

He goes on to add, “The flurry of loft office development raises the question of how deep the demand is for this product. It is too early to tell, but strong job growth in the technology sector and the leasing momentum at Stockyards Atlanta and Armour Yards are encouraging signs.”

OK. Cool.

But today’s article in The Atlanta Business Chronicle tells us that the new, lead tenant for this hip and cool loft office development in the Old Fourth Ward is none other than Room to Work LLC. If you read on you will note that Room to Work LLC is a “co-working concept”. Like loft office space, co-working concepts are springing up all over the place. They are to the traditional office model what Uber is to the taxi and limousine business. The article refers to three of these, WeWork, Industrious and Regus’ Spaces while ignoring the number of “mom and pop” operations set up by local landlords trying to fill empty space in their buildings that no one wants to lease.

The bottomline is that co-working concepts are synthetic office use and will not support a convincing enough cashflow to have anyone other than private equity firms committing long term resources to these things. Unfortunately, given the poor returns in other traditional investments and the hoopla given these new hip real estate investment opportunities, there are way too many, too eager investors rushing into this type of thing.

Caveat Emptor – “Let the buyer beware”!

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