Atlanta's real estate community knew that Hines was working on a deal to build a new headquarters tower for old-line law firm King & Spalding in the Midtown submarket. But when they learned that Hines planned to include more than 200,000 sq. ft. of spec space in the 625,000 sq. ft. project, many real estate watchers were left scratching their heads, wondering what the Houston-based developer might be thinking.

Midtown's office market is the second worst in metro Atlanta. More than 25% of Midtown's 13 million sq. ft. of office space is empty, according to Cushman & Wakefield. Only the North Fulton submarket, which got hammered by dot-com and high-tech collapses, is worse off than Midtown. The market-wide average vacancy rate was 23% at year-end.

In 2002, Midtown had a negative net absorption of 460,150 sq. ft., according C&W. Developers, including Holder Properties, Trammell Crow and Pope & Land Enterprises, spent the past 12 months trying to fill new buildings, which remain well behind projected occupancy levels.

Moreover, Midtown's usually stable trophy buildings are faltering. One Atlantic Center, the former IBM Tower with 1.1 million sq. ft., is struggling to fill more than 400,000 sq. ft. At Promenade II, owned by Equity Office Properties Trust, AT&T is marketing nearly 300,000 sq. ft. for sublease. “Everybody's surprised. Nobody can figure out what it's all about,” says A.J. Robinson, president of Portman Holdings, a finalist for the project. “[Hines] has its work cut out to lease all that empty space.”

Hines unveiled plans for the $125 million project in late March and says construction of the 41-story tower will begin early next year. The project, designed by Jon Pickard of Pickard Chilton of New Haven, Conn., will be known as 1180 Peachtree. King & Spalding, which expects to sign a lease for 405,000 sq. ft. by early May, plans to move in April 1, 2006.

Bob Voyles, senior vice president of Hones' Southeast region, says the firm is counting on the bulk of Midtown's vacant space to be leased by the time 1180 Peachtree opens.

The office tower will be part of the Symphony Center project at Peachtree and 14th streets near the Woodruff Arts Center. The Atlanta Symphony Orchestra is raising money for a new concert hall at Symphony Center.

Hines is well aware of the new construction and the high level of vacant space in Midtown. But 1180 Peachtree's location at Symphony Center makes it a unique building that tenants will seek out, says John Heagy, vice president of marketing for Hines' Southeast region. “The connection with the symphony will draw a lot of prospects to the building,” he says. Hines already has met with prospects for the spec space, but Heagy would not identify who they are.

Holder Executive Vice President Clark Gore says leading indicators show that demand for office space in Midtown could “take off pretty quickly” as the aftermath of the war with Iraq dies down and the economy rebounds. He is hopeful Millennium in Midtown will be “well-stabilized” by the time 1180 Peachtree opens.

However, he concedes that Midtown's office supply continues to grow as blue-chip companies such as Wachovia and BellSouth dump more space on the sublease market. “The supply side of the equation is hard to get your arms around,” Gore says.