A report submitted to the Sandy Springs City Council is urging the municipality to take action on ways to offset the anticipated loss of tax revenue from office properties.
Ladson Haddow of Haddow & Co. presented a Sandy Springs Office Market Analysis to the council its May 7 work session. The real estate consulting firm had been asked to determine how the city’s property tax revenue will be affected by changing office market conditions.
“You could really rewind back to the post dot com bust where the need for office space has been slowing. It’s just that COVID kind of poured gas on that fire and on that trend, and frankly, more than anything it empowered employees more than it ever has before which in turn let employers make tougher decisions,” Haddow said.
Companies that lease new space or renew space almost always choose less space than they formerly occupied, Haddow said.
Three quarters of the office buildings in the city each have more than 100,000 square feet of space each. Those buildings will feel a greater impact than the smaller Williamsburg-type office buildings that don’t have as many tenants and are typically more owner-occupied, Haddow said.
The sublease inventory undercuts the broader office market, he said. Rents in the Central Perimeter are approximately $34 a square foot, with subleasing space at $22 a square foot.
Another trend is that companies want walkability with amenities nearby, similar to the Atlanta BeltLine.
The city should anticipate more office market value erosion, he said. It should proactively explore which properties would be better suited for other land uses to encourage redevelopment in those areas through zoning and other incentives.
Proactive efforts could remove potential blight, reduce office supply for the benefit of the rest of the office market, and it could increase tax revenue with new development, he said.
He recommended that the city be proactive with zoning and development incentives as it has done with the Roswell Road corridor shopping centers.
Mayor Rusty Paul said as policymakers, they need to sit down with the Perimeter business leaders and start talking.
“This has a much greater impact, not on just Sandy Springs, Dunwoody, Brookhaven, but across the metro area,” he said. “This has been a huge job creator for this region for over 50 years. And it’s much easier to intervene before things get viral. So we’ve got to try and figure out how we incentivize some of this.”
Haddow & Co. was contracted to examine was a look at the office market from a tax assessor’s perspective, which showed the values have dropped 7 percent from 2019 to 2023, he said.
The medical office market hasn’t been affected as much. He said the vacancy rate for medical office space was 12 percent vs. 27 percent for the broader office market. Nine Sandy Springs medical office buildings examined had low vacancy rates and their values rose between 2019 and 2023.
Office properties accounted for a small portion of the $44 million in property tax revenue for the city in FY2024. The office property tax revenue is 6.5 percent of the city’s total $118.5 million in revenue.
The city’s office stock inventory remained relatively unchanged over the last 20 years, Haddow said. The appraised value for tax purposes of $4.1 billion is essentially the same as it was 15 years ago, though a low point in 2014 put the aggregate value at $2.9 billion.
The 27.2 million total square feet of office space includes 4.2 million square feet (15.5 percent) of medical office space.