The area's strong technology industry is showing a few cracks in the foundation, but more cranes across the city's skyline signal a continued building trend.

Real estate professionals across the burgeoning metro area of Atlanta are starting to sing the same familiar song: "Just give us one more good year ... "

Actually, there is much cause for continued optimism in Atlanta real estate circles. Since 1995, Atlanta has been on a roll, racking up unparalleled employment growth, driving the economy and population upward (the area will reach nearly 4 million residents by the end of this year), but adding more questions to quality-of-life issues.

How fast is the growth? Recent estimates by the Atlanta Regional Commission show the 10-county metro area added 99,100 new jobs in the past 12 months for a 3.1% increase, the second largest in history. An astounding 106,000 new jobs were added to the area in 1999.

Without a doubt, the primary driving forces in this market's prosperity have been the growth in new jobs and the growth of technology companies. Atlanta has become a "Silicon Southeast," with major firms like WebMD, Earthlink and S1 Corp. headquartered here and driving demand for more office space.

The telecommunications sector is on the rise. "Telecommunications firms are very active in Atlanta today, seeking to establish operations and market share," says John Shlesinger, executive managing director for New York-based Insignia/ESG. "As the telephone, cable and Internet industries converge, these companies want to be sure they're part of the huge boom expected as the last stage of fiber-optics networks are installed on everyone's doorstep." However, warning signs abound. The initial wake up call came this spring, when the NASDAQ stock market began its still-familiar roller-coaster ride of ups and downs, taking many tech firms' stock valuations right along with it.

"In the next three to five years, as Internet companies fail or consolidate, there may potentially be a surge of sublease space entering the market," says Bernard Haddigan, first senior vice president and managing director for Palo Alto, Calif.-based Marcus & Millichap. "These trends are expected to continue as the office market gains strength."

But Neal Golden, executive vice president and Southeast regional manager of the Atlanta office of New York-based Julien J. Studley, sees opportunity in the fall.

"The correction and slowdown in venture funding hit dot.coms hard, causing many to cut staff and some to close altogether," says Golden. "However, the sublease space that was put back on the market was quickly leased by creditworthy technology companies eager for ready-made facilities and by traditional office tenants. While we may be in the midst of a shake-out, the growth potential of this sector is enormous."

Another warning signal might be found in the recent announcements by Charlotte, N.C.-based Bank of America (laying off up to 10,000 workers) and WebMD, which lost $518 million in second-quarter 2000 and is laying off 100 employees, though only a handful in the Atlanta area.

Coupled with continued "Fed watches," you have what amounts to a less-than-balanced recipe for continued stratospheric future growth.

"There's got to be a slowdown of some sort," says Michael Elting, senior managing director for New York-based Cushman & Wakefield's Atlanta office. "We could be at the peak, right before it or maybe right after. But once again, job growth will continue to keep us from having a freefall. It will just be slower growth than we've had."

But, for now, nothing seems to put a dent in the optimistic armor of local real estate professionals. "At this point, most of us in the industry believe that there will be some slowdown over the next 18 to 24 months," says Robert Voyles, senior vice president in the Atlanta office of Houston-based Hines Interests. "This year, however, shows Atlanta continuing to exceed national forecasters' expectations with more demand and less supply than expected."

On this point, there is some agreement. "I feel that in 2001 we will remain on the expansion, or upward side, of the cycle," says Clark Gore, executive vice president of Atlanta-based Holder Properties. "However, 2002 could present signs of a slowdown. Unlike many cities, however, even in a down cycle, the dynamics present in Atlanta should always position us for a `soft' vs. a `hard' landing."

Here, it's all about the "D" word - "development." It's hard not to find it everywhere.

"Atlanta's urban markets of Downtown, Midtown and Buckhead are undoubtedly getting all the attention right now, but all submarkets are seeing strong activity," says Shlesinger of Insignia/ESG. "New Class-A developments under construction in Midtown and Buckhead, as well as continued adaptive reuse of older properties in the CBD, continue to attract a younger work force. Today's new-economy employees desire to live in the center of things, close to work and a variety of amenities and this is driving the strong activity in Atlanta's urban markets."

Shlesinger notes that plenty of firms also are still attracted to the historical advantages of Atlanta's suburban markets, such as proximity to executive housing, efficient floor plates and ample parking.

Buckhead booms Buckhead, perhaps the most recognizable (and hence most expensive) submarket in Atlanta, is booming. According to the Bethesda, Md.-based CoStar Group, the Buckhead office market has a vacancy rate of only 3.5% with average rents pushing $25 per sq. ft.

That in itself explains why a spate of recognized developers - including Hines, Toronto-based TrizecHahn, Philadelphia-based Rubenstein and Atlanta-based Regent Partners - have either broken ground or are planning large office buildings, all within the same square mile known as the Buckhead Loop, located just off Georgia's State Highway 400 and only blocks away from each other. So far, only TrizecHahn has its One Alliance Center under way, a 23-story, 600,000 sq. ft. tower with S1 Corp. signed on as the lead tenant for 200,000 sq. ft.

Still, the question begs: Is Buckhead on the verge of overbuilding? A mid-August announcement by Regent Partners might be one of the final pieces to fill the Buckhead puzzle.

Regent has announced the realization of a 10-year masterplan for its Tower Place development, which sits in the heart of Buckhead, with plans to build two major high rises - The Regent, a 35-story luxury apartment tower, and Tower Place 400, a 27-story office tower on Peachtree Road. The $200 million investment in new additions to the 26-acre mixed-use Tower Place complex at Peachtree and Piedmont roads on the Buckhead Loop will add 286 units of residential apartments and 585,000 sq. ft. of high-end office space, as well as a white tablecloth restaurant on Peachtree Road, says Regent's president David Allman.

Tower Place is a 1.3 million sq. ft. mixed-use project that includes Tower Place 100, a 600,000 sq. ft. high-rise office tower; Tower Place 200, a 260,000 sq. ft. office building; the 60,000 sq. ft. American Intercontinental University; a 231-room DoubleTree hotel; a 181-room Courtyard by Marriott hotel; and Tower Walk, a 165,000 sq. ft. retail and entertainment complex.

Couple all of the new development with the fact that even in the burgeoning Buckhead and Midtown markets, developers and landlords are scrutinizing their tenants more thoroughly before signing big deals, and you get more than a few mixed messages.

"The hottest tenant right now is one with credit," says Cushman & Wakefield's Elting. "Credit is going to be king as money becomes more difficult to find. The dot.com slowdown slowed down capital. The correction [this spring] was all about money and people finding out there were risks inherent in investing in these markets.

CBD shakes off the blues It wasn't so long ago that people were wondering if, not when, Atlanta's downtown market would come back. It has. Developers are actively scouting new sites for corporate headquarters, recent office completions have leased successfully and the investment market remains fairly strong.

Major announcements this summer by Cox Enterprises Inc., Atlanta's largest privately held employer, and Turner Broadcasting System Inc., also headquartered in the city, have solidified the CBD's prominent place in Atlanta's real estate circles. Cox is building a new 420,000 sq. ft. headquarters building in Sandy Springs near the Perimeter Center area. Construction began on July 27.

Turner chose to remain Downtown, expanding its CNN Center facility over the next five years at a cost of some $1.2 billion. Turner plans to add a $140 million, 25-story, 600,000 sq. ft. office tower across the street from CNN Center. The broadcasting company, in partnership with Omni Hotels, is also adding a 24-story hotel tower adjacent to the existing Omni Hotel at the CNN Center. Turner expects to create 3,800 jobs over the next five years.

Another recent project was completed this summer in Peachtree Center. A joint venture of Portman Holdings LP and SunTrust Banks Inc., both based in Atlanta, just finished the 650,000 sq. ft. SunTrust Plaza Garden Offices project. The development sits atop the parking garage of its towering mammoth sister, the 60-story SunTrust Plaza, built by Portman Holdings in 1992. The Atlanta-based Web-hosting firm Interland has moved into 190,000 sq. ft. of the new building.

"Downtown will be an interesting submarket to watch as several new potential projects get closer to the ground-breaking stage and the amount of real demand for Downtown space will become a little clearer," says Gore.

Atlanta-based Richard Bowers & Co. is taking on the daunting task of renovating the venerable Coastal States Building, a Downtown landmark since its completion in 1970. Bowers purchased the 26-story building last year, and plans to modernize the interior and exterior of the 305,000 sq. ft. structure at a cost of about $28 million. Work is expected to be completed by early next year.

Also Downtown, Taconic Investment Partners and Benenson Capital Co., both of New York, are paying Cincinnati-based Federated Department Stores an estimated $40 million ($66.66 per square foot) for the 73-year-old, 600,000 sq. ft. Downtown Macy's department store building.

The new owners plan to convert the top five floors of the six-story building to high-tech office and telecom switching space. The 360,000 sq. ft. of floors two through five in the newly renamed AtlantaXchange is expected to house 500 to 800 employees.

Atlanta's Centennial Olympic Park, a lasting legacy of the 1996 Olympic Games held in the city, has become a Downtown catalyst. Centennial Hill Development Partners, composed of the Harold A. Dawson Co., Southeast Capital Partners and Selig Enterprises, all locally based, recently broke ground on the three-acre mixed-use development. It will be the first large live-work-walk development neighboring the 21-acre park.

Park Tower, the 275,000 sq. ft., 17-story office component at Centennial Hill, is scheduled for completion by June 2002. It will complement a 19-story, 130-unit condominium tower that will include 15,000 sq. ft. of street-level retail space and a new home for the Children's Museum of Atlanta.

North Fulton is hot, hot, hot According to CoStar Group, the North Fulton County market is approximately 16% vacant, but there has been a tremendous amount of building and leasing activity in the area as technology firms gobble up space.

"Buckhead, Northwest and Downtown have all been particularly strong, but as usual, they all pale in comparison to the North Fulton market with its 1.3 million sq. ft. of absorption over the first six months of 2000 - amazing!" says Holder's Gore.

According to the mid-year quarterly office market report of Richard Bowers & Co., Class-A rental rates in North Fulton average $21.90 per square foot.

With 1.4 million sq. ft. of office space leased in the first half of the year, the 20 million sq. ft. market has attracted the likes of Chicago-based Jones Lang LaSalle Inc. and the New York-based J.P. Morgan Strategic Property Fund. The companies broke ground at Sanctuary Park in mid-August in a joint venture called Oakview II, a six-story, 150,000 sq. ft. building. The spec project, estimated to cost $15 million, is targeting a July 2001 completion.

J.P. Morgan acquired the 150-acre Sanctuary Park in 1997 as part of a 13-building portfolio transaction with Fairfield, Conn.-based GE Real Estate Equities and Atlanta-based American Resurgens Management Corp.

Another major project announced late this summer is Pope & Land's proposal to sell six office buildings totaling more than 880,000 sq. ft. that it developed at Northwinds at Georgia Highway 400 and Haynes Bridge Road. The Atlanta-based firm wants to build an 11-story, 262,000 sq. ft. office tower in the Northwinds project, which, if completed, would bolster the feasibility of high-rise space in the North Fulton market.

Also, Clinton, Miss.-based Worldcom announced in September plans to eventually relocate most of its approximately 4,000 metro Atlanta employees to a new corporate campus in North Fulton County's Alpharetta. Dallas-based WorkPlace USA, which is developing corporate campuses across the nation for the telecommunications giant, will construct a five-story, 250,000 sq. ft. building to be ready by September 2001. A comparable second phase of the development will follow by 2003.

Investment sales climb Several major office and industrial investment deals have cast Atlanta in a more favorable national light. In August, RREEF Funds, a Chicago-based pension fund adviser, bought the 11-story, 286,572 sq. ft. Glenridge Highlands One office tower, at Georgia Highway 400 and the Glenridge Connector, from The Hogan Group out of Tampa, Fla. The estimated cost of the development was $43 million, or about $150 per sq. ft. Hogan is currently developing Glenridge Highlands Two, a 20-story, 414,000 sq. ft. office tower near its sister structure.

Also in August, New York-based Clarion Partners purchased the Lenox Building, a 20-story 350,000 sq. ft. Class-A office tower in Buckhead, from Indianapolis-based Simon Property Group for about $70 million, or $201 per square foot.

Other investment deals of note include:

- The January sale of Overton Park by the Kennedy Estate to Hines Interests for $8.16 million. The deal paved the way for Hines' Overton Park Phase I, a 10-acre development that will include a 350,000 sq. ft. office building, a 15,000 sq. ft. retail center and a 400-room hotel. Overton Park is located in the Cumberland/Galleria submarket at the southeast corner of interstates 285 and 75.

- The December 1999 sale of One Atlanta Plaza, a 33-story Buckhead/Lenox area office tower with more than 600,000 sq. ft., to Atlanta-based Lend Lease for $115 million.

- Hamilton, Bermuda-based Overseas Partners Capital has put Buckhead's 900,000 sq. ft. Atlanta Financial Center up for sale. The property could fetch as much as $200 million.

- The August purchase by San Francisco-based AMB Property Corp. of two industrial buildings at 5300 Kennedy Road and Old Dixie Highway in Forest Park from Des Plaines, Ill.-based DSC Logistics for an undisclosed amount. The buildings total about 800,000 sq. ft. on 46.6 acres near Atlanta's busy Hartsfield International Airport. The buy puts AMB's Atlanta industrial portfolio at about 6.5 million sq. ft.

- The recent sale of Downtown Atlanta's landmark Equitable Building to a partnership between Dallas-based Lincoln Property Co. and ING Real Estate, headquartered in Washington, D.C. Owner Jones Lang LaSalle had been trying to sell the 32-story, 594,000 sq. ft. building on Peachtree Street since mid-1999.

Industrial sprouts north & south Following on the heels of Atlanta's population and job growth is its industrial market. Most of the industrial development is migrating to the northeast part of the city, particularly up the Interstate 85 corridor in Gwinnett County, and to the south side of the city into Henry County.

According to Northbrook, Ill.-based Grubb & Ellis, the Atlanta industrial market had absorbed 2.5 million sq. ft. of space through June 30, and is on track to absorb 8 million sq. ft. by year's end. That's well below the 13.7 million sq. ft. it absorbed in 1999. The firm says South Atlanta and the Northeast market have the largest amount of construction with 3.5 million sq. ft. and 3.1 million sq. ft., respectively.

What is driving the present demand? "Right now, one of the main factors behind our hot industrial market is a new type of user," says Matt O'Sullivan, senior vice president at Atlanta-based Industrial Developments International (IDI).

"The e-businesses or Web/Internet-related businesses are taking warehouses in the Atlanta market for co-location purposes and Web-server hotels," he says. "It's new, and it's absorbing a lot of industrial space because our warehouses are ideal for this technology."

"The other factor that's somewhat new to Atlanta is an emergence of large or bulk distribution facilities on a speculative basis," continues O'Sullivan. "We're talking 500,000 sq. ft. or more, or 500,000 sq. ft. and expandable. We're becoming more of a true big-box market than we have been in the past. This is evidenced by the large activity on the south side of the city."

O'Sullivan believes industrial developers will have to go to Henry County some 30 miles south of the airport or farther north up I-85 another 15 miles beyond current development in that area in order to find additional property that is both zoned for industrial use and affordably priced.

Greg Thurman, senior vice president of the Atlanta industrial division of Indianapolis-based Duke-Weeks Corp., agrees. "The Northeast market, along I-85, has traditionally been where the majority of absorption takes place. As available ground gets more scarce, development can continue to expand Northeast."

Duke-Weeks recently acquired 200 acres in Braselton, about 50 miles outside of Atlanta. The company will deliver a 500,000 sq. ft. bulk building in January 2001. "We're planning eight buildings in Braselton to keep up with demand," says Thurman.

Retail gets competitive For years, pundits have been saying that Atlanta, in general, is over-retailed. With its proliferation of regional malls and community shopping centers, the point may be well taken, but it hasn't stopped developers from building new projects and leasing them up.

"Although much attention has been focused on the potential threat of Atlanta being overbuilt, a majority of the new construction hitting the market in 1999 and early 2000 was from new mall development," says Marcus & Millichap's Haddigan. "While there has been strong demand by retailers and much of the space has been absorbed, vacancy rates have been trending upward. As a result, rents have shown little increase and sales values have stagnated overall."

Developers and investors have recognized the threat of suburban sprawl and have begun to follow the migration of high-income residents into the core urban areas of Atlanta, says Haddigan. The elevated rate of absorption currently experienced by the Atlanta MSA will be necessary to help sustain the market stability in 2000," says Haddigan.

One of the largest retail projects to come out of the ground this year is The Mills Corp.'s new Discover Mills, a 1.3 million sq. ft. retail and entertainment shopping center in Gwinnett County. Earlier this year the Alexandria, Va.-based developer signed four anchors - Bass Pro Shops Outdoor World, F.Y.E. For Your Entertainment, Jillian's and Off 5th Saks Fifth Avenue Outlet.

Construction on the project began earlier this year, and a fall 2001 opening is scheduled. When completely leased, Discover Mills will have 200 retail stores, restaurants and game venues.

"Discover Mills is one of the most exciting projects in our Mills pipeline because of the favorable demographics in terms of household income and population in the surrounding Atlanta market," says Larry Siegel, Mills' chairman and CEO.

Earlier this year, Mills and New York-based Discover Financial Services announced a 10-year, multimillion-dollar partnership whereby Discover Card will become the preferred payment method at Discover Mills, which is anticipating $400 million in annual retail sales. This partnership represents the first-ever naming rights deal for a shopping mall.

Mills also is active in the booming Midtown market with The Block at Midtown Atlanta concept, a 1.2 million sq. ft. development to be located to the east of the intersection of interstates 75 and 85 at 17th Street. The project is the retail component of the first phase of Mill's mixed-use master plan for the 144-acre site. The overall plan calls for up to 4 million sq. ft. of offices, about 1 million sq. ft. of high-tech space, 2,400 residential units and 800 hotel rooms. Opening is scheduled for fall 2002.

Another major shopping mecca is slated for DeKalb County - the Mall at Stonecrest, a joint development by Toronto-based Cadillac Fairview Corp. and Cleveland-based Forest City Enterprises, and Stonecrest Marketplace, a power center being developed by Cincinnati-based North American Properties.

The mall component includes 1.3 million sq. ft. and is projected to open in fall 2001 with five anchor tenants and 120 specialty shops. The marketplace also opens in fall 2001, and features 450,000 sq. ft. of retail space and 10 anchor stores.

Hotels heat up According to a joint survey of Atlanta's hotel general managers conducted by San Francisco-based PKF Consulting and Hendersonville, Tenn.-based Smith Travel Research, overall occupancies, room rates and revenue per available room (RevPAR) are expected to hold firm through all of 2000. The survey indicates 2001 should see marked growth in each category.

Development of new hotel properties has continued at a brisk pace. In Buckhead, Atlanta-based Bass Hotels & Resorts is building a flagship Inter-Continental Hotel on Peachtree Street near Lenox Mall. The 425-room, five-star property will join the ranks of fine hotels in the area such as the Grand Hyatt, J.W. Marriott Hotel at Lenox, Ritz-Carlton Buckhead and Swissotel Atlanta. Hogan Group of Tampa is buying the 3.7-acre site and will build a 456,000 sq. ft. office tower adjacent to the hotel.

In the Downtown market, the addition of a 24-story, 593-room tower to the 470-room Omni Hotel - one of the key components of Turner Broadcasting's $1.2 billion development program - will more than double the number of rooms to a total of 1,063. The $100 million hotel expansion raises the luxury facility into the big leagues of convention hotels - those with 1,000 rooms or more. Only four other Downtown hotels are as large.

Across the street from The Omni Hotel is the Georgia World Congress Center. The huge convention facility is now adding 420,000 sq. ft. to its existing exhibition space for a total of 1.4 million sq. ft. The $220 million project is scheduled for completion in summer 2002. The dual expansion projects are expected to enhance Atlanta's robust convention business.

Apartments test intown strength By now, it may be no secret that Atlanta-based apartment leader Post Properties is concentrating much of its development efforts on intown projects. This summer it announced the new Post Peachtree, a 30-story high rise that will become the first of several intown high-rise prototypes developed by the firm.

But that's only one aspect of what has become a much larger residential pie in recent years. According to Dallas-based M/PF Research, the Atlanta apartment market saw a big surge in demand during second quarter 2000, with some 6,350 units absorbed vs. 3,766 completions. So, from third-quarter 1999 through second-quarter 2000, demand was 17,760 units, well ahead of the 13,170 units completed. Still, the competition to bring more units on line is intense. That has driven rent growth in the past year to 3.6%, down from 4% to 5% during 1998 and 1999. "Lease-up remains robust," says M/PF president G. Ronald Witten.

But there could be signs of trouble ahead. Early in October, Post warned that it would not meet analysts' profit expectations for the third quarter, touching off heated discussion among local apartment developers about their own future prospects. The company also announced it would likely pull out of two huge inner-city projects, at the Atlantic Station site in Midtown and the Lindbergh Station development in Buckhead.

Despite these pullbacks, Post said it was not abandoning its urban strategy in markets around the country. In fact, Post's strategy shift has left the outer suburban markets as fertile ground for other developers to pick up the ball. In Atlanta's outer submarkets of Henry, Cherokee, Rockdale, Newton and Coweta counties, apartment completions are at 500 to 1,000 units.

On the new-construction front, the building pace is substantial in Gwinnett County (mostly in west Gwinnett), and Roswell and Alpharetta. Urban development is also big, sustained in Intown/Midtown (1,000 to 1,100 units last year and next year) and surging in Chamblee/Dunwoody (1,600 completions in this market during the next year vs. 0 in the past year).

"I think a key question focuses on how urban demand will hold up as more for-sale product is introduced," says Witten. "Atlanta and Dallas will be the nation's test cases."