Michael Shaffer walks through the vacant third floor of the Georgia Cyber Center building, where bare concrete floors and unfinished drywall make the space smell like a building-supply wing of a hardware store.
The floor that could comfortably accommodate up to nine office suites is the only non-leased space left in the 165,000-square-foot building that partly bears Shaffer’s name.
The fourth story has some vacancy, but that space is being subleased by the floor’s sole tenant, Parsons Corp., an engineering and cybersecurity firm. The fifth floor is empty but already spoken for; Shaffer declined to name the tenant until an official announcement is made later this year.
Just east of the Shaffer-MacCartney Building sits its architectural twin, the 167,000-square-foot Hull-McKnight Building. It is fully occupied.
Which begs the question: If demand at the relatively new innovation and education complex is so brisk, is the $100 million campus in need of a new building?
Shaffer, Augusta University’s executive vice president for strategic partnerships and economic development, answers without hesitation.
“Yes, there is need for another building,” he said. “I don’t have a problem saying that. Dr. (AU President Brooks) Keel and I have had that discussion, so I don’t mind saying that.”
To the west of the two cyber center buildings lay eight acres of state-owned property that at one time was slated to be the botanical gardens for the ill-fated Georgia Golf Hall of Fame project.
A new building, or buildings, could certainly go there. And it would make the cyber campus – already the largest single investment in cybersecurity by any state government in America – even bigger.
The facility, which already houses academic, government (multiple “three-letter agencies,” Shaffer said) and private-sector military contractors such as BAE Systems, SOFTACT Solutions and OPS Consulting, added a new tenant this summer: Perspecta.
The Virginia-based company, which in February won a $905 million contract to provide cyberspace support operations to Army Cyber Command, will use the office for training, on-boarding and research for up to three-dozen employees. The company’s Fort Gordon office employs about 150 people.
“This space was needed because you need this kind of facility to do the things that you might not necessarily need to do out there (at Fort Gordon),” said Jennifer Napper, Perspecta vice president and account manager for the Army contract.
For example, the space will enable new employees to work while their security clearances are being completed. The office can also handle non-technical minutiae such as payroll processing and other human resources functions. But it also will have access to the cyber center’s “virtual assured network,” which lets engineers create any type of cybersecurity scenario without using the military’s actual electronic warfare equipment.
“We’re looking to do that without having to buy all the radios, all the satellite time,” she said. “All of that stuff we’re doing by computer simulations.”
Perspecta’s office space was built out before the COVID pandemic was declared a national emergency, but it will function quite well in the coronavirus era, as workspaces already are more than six feet apart and partially sectioned off by cubicle walls designed to muffle private phone conversations.
“The other advantage of a new building that is probably not discussed a lot is the new ventilation system,” Napper said, referring to dust and other particles that accumulate in mechanical systems over time. “I would not want to work in an old building in a COVID environment.”
‘PUSHING THE PAUSE BUTTON’
At the moment, it doesn’t matter what downtown office building you are talking about – most have seen prospective tenants adopt a wait-and-see attitude since the coronavirus pandemic hit Georgia this spring.
“In general, the office market in Augusta is very moderate,” said Jane Ellis, a board member of the Augusta Downtown Development Authority and a commercial real estate agent with Sherman & Hemstreet. “We don’t have a terribly large amount of vacancy, but we have some because of the cyber center being added.”
Indeed, the rapid construction of the 332,000-square-foot Georgia Cyber Center complex – the largest new office development in downtown in decades – caused some temporary distortions in what was a predominantly slow-growth asset class.
“The numbers have climbed over the past few year across the board,” Parker Dye, who specializes in downtown properties for Jordan Trotter Commercial Real Estate. “Especially since the cyber center came online.”
A DDA-commissioned office report conducted by Sherman & Hemstreet showed year-over-year rental rate increases for all offices in the urban core – regardless of their age – peaked in 2018, the year Gov. Nathan Deal announced the cyber center project. The 2020 growth rate is flat, and the report forecasts rates to be flat through mid 2023.
Average office rates in Augusta range from $27.45 per square foot for 4- to 5-star buildings, what most people would call “class A” office space, to $14.24 per square foot for 1- to 2-star buildings. The vacancy rate for all properties is 16.6%. The report relies on data from CoStar, a national firm that tracks 83% percent of commercial real estate transactions.
The decision to open or relocate an office is a costly proposition at any time, but the pandemic adds an element of risk to the decision.
“We still see new tenant activity, but its definitely slowed,” said Derek May, president of Azalea Investments, a real estate company whose portfolio includes the Augusta University mid-rise at 699 Broad St. and the Augusta Riverfront Center at 1 10th St. “A lot of people are playing wait-and-see. They’re pushing the pause button to see how all this shakes out.”
Dye said property showings have noticeably decreased, but the pandemic has had more of an impact on sales and development, which are more capital-intensive than leases because they require investors to make longer-term commitments.
Still, he said, the economic downturn has not caused downtown property prices to plummet to fire-sale levels. Augusta’s overall economy is too robust for that.
“I don’t see where people are looking to sell for pennies on the dollar,” Dye said. “Every market is different – you can go an hour or two down the road and somebody may have a different outlook – but our downtown has grown so much in the past few years and I don’t see any real signs that will stop.”
He said the most significant impact appears to have been on project timelines. Supply-chain problems have made it more challenging to procure a certain types of flooring or fixtures a tenant may want, and the host of professionals who help design, engineer and build office space may be suffering from COVID-19 disruptions in their own offices.
“If you need a plat done, for example, it might be harder to get those guys to come out to do it depending on if they’re working a full schedule or not,” Dye said.
The commercial real estate industry has historically lagged the overall economy by six months, so the pandemic’s true impact may not be seen until 2021 or 2022.
THE NEW OFFICE
The pandemic may have companies paying rent, or a mortgage, on office buildings they are not fully occupying. Many employees are working from home or coming into offices in staggered shifts to ensure maximum social distancing.
The desire for isolation is particularly challenging in new offices, many of which have adopted open floor plans to remove perceived barriers between employee groups and promote collaboration. Offices such as TaxSlayer’s recently opened headquarters and Innovation & Technology Campus at the former YMCA building on Broad Street is 50,000 square feet of mostly open-office architecture.
“Our employees have been resilient as we’ve seen changes to the way that we work,” TaxSlayer CEO Brian Rhodes said.
The building at 945 Broad St. employs nearly 150, who help support the 300 customer service and seasonal employees who work in the company’s Evans office.
“We are reevaluating our employee and workplace policies regularly and taking guidance from health officials. One thing is certain – our team at TaxSlayer has been adaptable” as the company worked through an extended tax season, Rhodes said.
May believes the rebellion against 1980s-era cubicle culture in recent years will lose momentum the longer the pandemic grinds on.
“All of a sudden you don’t want to be sitting three feet away from your buddy who’s coughing,” May said.
However, he said he doesn’t believe future office tenants will want a full-fledged return to compartmentalized offices. He expects to see hybrid designs that promote teamwork but give employees the option to meet in private when necessary.
“I believe that face-to-face collaboration is important to the success of a business,” he said. “While a lot can be done at home, there is a lot to be said for a gathering place at work. At the end of the day, we’re social creatures.”
Some believe Augusta stands to gain office jobs in the post-pandemic economy as employers and workers seek out lower-density cities that are less congested with people and cars.
Augusta Downtown Development Authority Director Margaret Woodard said her group of counterparts in other cities across the state refer to the theory as the “rural renaissance.”
“People are going to want more open spaces, more bike lanes and things like that,” she said. “Mid-sized cities like Augusta have a great opportunity to pick up workers looking for places that are less crowded and more affordable. The pandemic has proven you can work from anywhere.”
The pandemic didn’t exist last spring when Benjamin H. Brewton needed to a place to locate Birmingham, Ala.-based Balch & Bingham LLP’s new Augusta office.
The attorney, primary focus is on heavily regulated industries, such as utilities, health care and banking, has practiced law in Augusta for 30 years. He previously worked for a firm whose office was in a 172-year-old renovated home on Greene Street.
There is more than 4.6 million square feet of office space in Augusta’s urban core, but there was only one place Brewton wanted to be: the central business district.
“It was very clear to me that the office space needed to be downtown,” Brewton said from his suite on the eighth floor of the SunTrust Building at 801 Broad St. “A great deal of what I do is litigation, and the courthouses are here, and I can look out the window and see all the hospitals and Plant Vogtle in the distance.”
Brewton said he likes being able to walk to restaurants, the Augusta Common and Riverwalk Augusta. He said the pandemic has not made him regret his decision to open an office in the city’s most densely populated area.
“Hopefully, it is a temporary thing that will be brought to heel,” he said.