If empty office buildings are an ailment for cities, then downtown Atlanta has come down with a cold.
Vacant towers — when left to fester — weaken property values, sink tax revenues and create blight that can spread through central business districts.
Diagnosing the problem is straightforward, city leaders say. Downtown has an oversupply of aging office buildings that can’t compete for tenants in a post-pandemic work environment. Finding an antidote isn’t as easy, but some Atlanta officials and developers are optimistic that converting some of those unwanted offices into something more desirable, like apartments, could help soothe the pain.
“If work-from-home is here to stay, we need to bring those homes into downtown and fill those buildings with residents,” said Alena Green, director of economic development for downtown civic organization Central Atlanta Progress (CAP).
CAP commissioned a study of downtown office buildings to determine which might be good candidates for conversion. Consultant HR&A Advisors and architecture firm Lord Aeck Sargent also analyzed downtown’s infrastructure and regulatory environment to find barriers that could stall adaptive reuse.
First obtained by The Atlanta Journal-Constitution, the study found that only a few of the surveyed buildings make financial sense to turn into housing. But that list — and the potential impact of conversions — could grow significantly if Atlanta is willing to pony up additional incentives to spur more office-to-residential conversions, the study found.
“Converting office to residential, even if you get the asset for a very low cost, is just not viable these days,” Mack Reese, managing partner at Atlanta-based developer The Atlantic Companies, said March 20 during a CAP panel discussing the study’s findings. “... You’ve got to somehow bring in the various incentives as a difference-maker, because without those, frankly it’s just not financially viable.”
Credit: NATRICE MILLER
Credit: NATRICE MILLER
Empty buildings are worth less than fuller ones, affecting the tax base. Though offering public dollars to retrofit buildings will likely prove controversial, it could be a viable path to reduce obsolete office stock while addressing the region’s housing shortage.
“Conversion is not the silver bullet, but opportunities exist,” reads the study’s top takeaway.
While home to more than 20 million square feet of offices, downtown only has a few thousand apartments and condominiums. Mayor Andre Dickens and several downtown developers say increased housing is the key to a vibrant city center.
“Downtown Atlanta has struggled for years because it has never been a neighborhood,” said George Banks, founder of retail consulting and development firm Revel. “Downtown is not going to thrive until it has 15,000 permanent residents.”
‘Urgency of the moment’
COVID-19 shook the country’s office market, allowing many white collar workers to clock in remotely or enjoy the flexibility of a hybrid schedule.
Metro Atlanta set records in 2023 for its glut of unwanted office space. Downtown’s recovery has lagged behind other parts of the city, with amenity-rich newer buildings often attracting more interest than older offices.
According to the study, about 28% of downtown’s office stock is currently vacant. About 2.4 million square feet of additional leases are scheduled to expire downtown by 2028, meaning vacancy could shoot up to 39% if no new leases are signed.
“It’s certainly a worst-case scenario,” Green said, “but it helps us underscore the urgency of the moment.”
The consultants surveyed 105 non-owner-occupied buildings that were at least three stories tall and found that only 10 emerged as potential viable residential conversions considering currently available incentives, primarily federal and state historic tax credits. However, only half of those buildings are currently underperforming and the buildings are on the smaller size, comprising a total of 675,000 square feet with the potential to be retrofitted into about 1,000 apartments.
Other cities have more lucrative incentives available to developers to encourage adaptive reuse. Boston provides 75% property tax abatements for up to 29 years for applicable projects, while Calgary in Canada offers up to $56 per square feet in discretionary grant funding to convert office space into below-market-rate housing.
If Atlanta were to adopt an incentive system similar to Calgary, the study found the number of downtown conversion candidates would increase to 25 — and these buildings are much larger. In total, they comprise more than 4.5 million square feet and have the potential to create more than 4,800 housing units.
The study did not look into interior building infrastructure, so some of the highlighted conversion candidates might cost more to retrofit than others, but CAP leaders said it provides a ceiling for what is possible.
“We have to quantify the cost of doing nothing at all, and how that decay of office values if they just sit creates a drain on city revenues,” Green said.
Josh Humphries, the mayor’s senior housing advisor, said Calgary has used $160 million in city reserves to set up its conversion grant program in an effort to make it back through increased property tax revenues. He said Atlanta leadership will evaluate incentive options over the next few months to see if the benefits outweigh the costs.
Other conversion factors
Atlanta has a history of adaptive reuse, but it’s less prevalent than older cities like New York.
About a fifth of downtown’s housing units are in buildings that were previously office or industrial, according to CAP. But changing a building’s use involves a lot of construction costs and the right type of internal building layout, developers say.
Banks, the founder of Revel, said adaptive reuse projects often involve gutting the entire inside of a building. He was on the team that converted the former SunTrust bank control center at 250 Piedmont into the Altitude apartment complex.
“We used to joke that at Altitude, all we bought was concrete,” Banks said. “Literally all we got for our money was 20 stories of concrete.”
Credit: Central Atlanta Progress
Credit: Central Atlanta Progress
While empty offices are an issue across downtown, the worst vacancy problems are concentrated in only a few buildings, the study found.
Some high-profile conversions are underway in the city, namely the 2 Peachtree Street project. A team of four developers, including Reese’s firm, aim to turn the 40-plus story office tower that used to house government workers into 625 apartments, including 222 affordable units.
“Conversions are not easy but opportunities certainly exist with the right tools,” Green said.
Future of Downtown
This story is part of an occasional series by the AJC to look at the future of Atlanta’s downtown. Several high-profile developments are poised to bring billions of dollars into the city’s core while it continues to grapple with the fallout of the COVID-19 pandemic and a challenging real estate financing market.
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