Glut of office space plagues Atlanta as tenants disappear: corporate downsizing has taken a toll on office landlords across the Southeast. But the overabundance of office space, created by significant job losses and overbuilding, has been particularly severe in Atlanta, the region's largest commercial real estate market - Regional Focus - commercial real estate development and investment

EconSouth, Summer, 2003

Commercial real estate will continue to be a major contributor to the Southeast's economy. It may be a while, however, before enough businesses can be found to fill some of the abundant vacancies. But eventually it's likely these assets will be utilized to support future growth.

RELATED ARTICLE: "Bottom fishers" drive Southeastern housing.

As the economy in the Southeast has slowed, housing has emerged as a notable area of strength. Brisk residential construction has sustained growth in myriad related fields, from building materials to financial services.

"We continue to be amazed by the strength of the market," said John Wieland, an Atlanta-based homebuilder and former chairman of the Atlanta Fed's board of directors. "March (2003) was a record month for us, and April was strong as well. It's all being fueled by incredibly low (interest) rates."

Many consumers perceive the 40-year-low mortgage rates as a fleeting opportunity to buy. So-called bottom fishers (people who are motivated to buy or refinance homes because of low interest rates) are rushing into purchasing decisions while rates remain favorable, and the number of people who qualify for mortgages has never been higher.

For now, buyers have a strong hand, with "some areas reporting a softening in market conditions," according to the Atlanta District section in the April 2003 Beige Book, an anecdotal report on current economic conditions released eight times a year by the Federal Reserve. "High-end homes remained difficult to sell in most parts of the District." What's lacking, at least for now, is substantial job creation or relocation into parts of the region, according to the report.

Perhaps the softest price range for homes is $500,000 to $700,000. "A lot of people who buy in that range have taken it on the chin with investments," said Phillip Rassel, a vice president with Metrostudy, a residential real estate information service.

The decline in stock wealth has been broad but not catastrophic for a significant number of affluent families with the means to bid $1 million and up for their dream home, Rassel said. As a result, the value of some houses in exclusive neighborhoods continues to appreciate, and the second-home vacation market remains strong in certain locations.

Strength in the housing sector has applied to most parts of the Southeast. New Orleans has recovered from a slump in tourism late in 2001, and home-sale prices increased 7.5 percent during the first nine months of 2002. Sales activity also increased despite weak sales of multifamily dwellings.

Housing permits in 2002 were at or near peak levels in Birmingham, Nashville and Atlanta. And the residential market for Florida has been "exceptionally strong," said Brad Hunter, director of Metrostudy's south Florida office. "There's been a lot of capital flight from Venezuela and Argentina, and people are choosing to put it in the Miami market," he added.

Given the weak economy and the disparity between residential and commercial real estate, speculation exists about a "housing bubble" that could lead to a sudden decline in home prices and hence in equity.