While it's still too early to call Atlantic Station a smashing success, the 138-acre mixed-use project located on the site of a former steel mill in Midtown Atlanta is proving to be a strong performer on multiple fronts: A 22-story office tower is 94% occupied, two condo projects are sold out and another is 80% sold, and retail sales at Dillard's and AnnTaylor Loft meet or exceed expectations. So far, Atlantic Station is “coasting,” says Jim Jacoby, the project's founder.

Still, some concerns persist about ambitious plans for as much as 6 million sq. ft. of office space to be built at Atlantic Station. Can Atlanta's recovering Midtown office market, which is currently burdened by an unhealthy vacancy rate of 15.5%, absorb a wave of new construction? And will the residential component of the project run into head-winds if a real estate bubble emerges, particularly in the condo sector?

Wachovia anchors the newly built 22-story office tower, which is almost fully occupied. Insurance giant and owner, AIG, put the tower up for sale in September. A second, similarly sized office tower is already in the works and waiting for tenants.

AIG plans a relatively aggressive development schedule for its new offices, says Kevin Fitzpatrick, president of AIG Global Real Estate. The company will keep “delivering supply as long as the market holds up,” he says.

The success of the first office building, however, was a surprise to many in the Atlanta development community, says Bob Voyles, former senior vice president of Hines in Atlanta, who is currently putting together a competing mixed-use project in the same submarket. Atlantic Station is located on the opposite side of Interstate 75 from the traditional Atlanta CBD and its famed Peachtree Street. A new bridge connects the project to the rest of the city.

“It's a big psychological change to move across the Interstate to a project that's fairly avant guarde,” says Voyles. But Atlantic Station's managers are still bullish on their prospects for meeting market demand.

The city's office vacancy rate is improving from historic lows in recent years — the overall Atlanta vacancy rate is 18.2%, down from 19.4% last year. What's more, the 15.5% vacancy rate in Atlantic Station's submarket has dropped 10 percentage points in a year and a half, says John Whitaker, CEO of Atlantic Station and AIG Atlanta point man.

But the complex is not without other, smaller challenges as well. Atlantic Station was built above one of the country's largest parking decks. Consumers can lose their way, and many big office tenants aren't used to mixing employee parking with retail customers, Voyles says.

Voyles also questions whether the brisk retail business is due to the novelty of the project, or if it has true staying power.

Developments like Atlantic Station are new to Atlanta, a community that has historically thrived on big-box shopping centers, acre-lot subdivisions and single-use office parks.

The mixed-use project has the region's only IKEA store, an 800,000 sq. ft. retail village, more than 1,700 condos — both mid-rise and high-rise — and an office tower.

The success of the residential condos is not exclusive to Atlantic Station, however. Atlanta is enjoying a “condo phenomenon” of young buyers seeking living spaces in lively, urban markets, says Marc Pollack, president of Lane Co., which is building six multifamily projects at Atlantic Station.