Developers and investors are placing big bets that downtown Atlanta's potential outweighs the district's decades of neglected office and residential construction. That signals a potential property turnaround at the heart of the biggest metropolitan area in the Southeastern United States.

Construction on three major mixed-use developments — Centennial Yards, South Downtown and Underground Atlanta — are underway or in advanced planning stages within a quarter-mile radius in the core of Atlanta's downtown. All three, with office and residential components, are located on sites that have been vacant or underused for years.

Developers and their equity partners are hopeful based on the success of similar big-city downtown developments from New York to Los Angeles.

"Now is the time for downtown," Shaneel Lalani, CEO of Underground Atlanta developer Lalani Ventures, told CoStar News. "This is ultimately going to be the perfect place to be."

That may be a safer bet for multifamily than for office property. Downtown Atlanta did not have any construction of top-tier new office buildings between the Great Recession and the pandemic, according to CoStar research. The office tower at 55 Allen Plaza, developed by Barry Real Estate Cos., is the only Class A office property completed downtown since 2007 for lack of demand — even before the pandemic spurred working from home.

That's not stopping Los Angeles property investor CIM Group, German investor Newport RE and a suburban Atlanta businessman with little experience in real estate development from going all-in on downtown. These developers are looking to emulate the success of projects like L.A. Live in Los Angeles and Hudson Yards in New York City, which they weren't involved with.

In downtown Atlanta, the developers also have a hard-and-fast deadline to get something done: soccer’s 2026 FIFA World Cup.

FIFA's choice of Atlanta as one of 16 North American cities to host World Cup matches illuminates the downtown district's massive potential. With the 75,000-seat Mercedes-Benz Stadium, where the World Cup matches will be played, along with State Farm Arena and the Georgia World Congress Center, downtown is a magnet for tourists and conventions — if not new offices and residences.

Atlanta’s downtown business district has steadily declined for decades as highly desirable office tenants like banks and law firms in the 1970s bolted to Atlanta's most desirable districts such as Buckhead and, later, Midtown. Retailers fled, too, including the 1991 closing of the historic Rich's department store.

Rents for downtown offices trail those in Midtown and Buckhead, according to CoStar research. The average rate for downtown in the second quarter was $30.60 per square foot, compared to $40.92 for Midtown and $36.36 for Upper Buckhead.

Meanwhile, downtown failed to secure any of Atlanta's top 10 largest new office leases and renewals in the second quarter, which include staffing firm Insight Global's 134,000-square-foot lease in the Central Perimeter district, according to Savills.

Multifamily development in downtown Atlanta has been ramping up as the district's inventory has almost doubled since 2010, according to CoStar research. But downtown has lagged behind the rest of Atlanta in costs to rent an apartment. The average apartment rent in downtown Atlanta is 41% higher than a decade ago, but that's far behind the 72% increase in average rent for the entire Atlanta area, according to CoStar research.

Even downtown's prime economic driver — its convention business — has struggled in the wake of the pandemic. While the average downtown hotel occupancy rose to 56% in May this year compared to 39% in May 2021, according to the Atlanta Convention & Visitors Bureau, STR data shows that it's still lower than the 65% for the United States and the almost 81% for all of New York City.

Ambitious plans for downtown development have been mentioned for years, but developers have struggled to pull them off. Underground Atlanta, especially, has had more than its fair share of false starts.

The unusual retail and restaurant district, located beneath city viaducts and next to an active freight railroad line, opened in 1969 and initially was successful. But its popularity waned in the late 1970s and it shut down in 1980.

Underground’s reopening at the time of the 1996 Olympics was short-lived, and the district has been largely vacant for the past 20 years. A South Carolina-based developer acquired it in 2017 but never followed through with redevelopment plans.

Now, Lalani, a businessman from suburban Gwinnett County, wants to take a shot at Underground. Lalani acquired the property in 2020 for $31 million and recently signed Underground’s first significant new tenant in years, craft brewery Atlanta Brewing.

Lalani told CoStar News that he envisions Underground as a live-work-play district with the initial emphasis on multifamily properties.

“Once we have people living downtown, everything else will follow,” he said.

Lalani is working with Niles Bolton Associates on creating a master plan, which he said could be released by year’s end. He has not yet hired an architect or general contractor, and he hasn’t disclosed an estimated project value.

The $5 billion Centennial Yards is much larger in both size and scope. CIM Group wants to build office towers and residential buildings, an entertainment district and a hotel on a platform covering a wide expanse of parking lots, rail lines and a smattering of old trees.

Legal battles over Centennial Yards’ public financing stalled the project for years. But the first property, the conversion of a 1912 Norfolk Southern building into apartments, opened last year.

Now Centennial Yards is set to kick into high gear, as construction will begin before the end of 2022 on three apartment buildings and a hotel, Brian McGowan, president of Centennial Yards, told CoStar News.

CIM Group is negotiating with potential tenants for its office space. All new buildings will be set on a grid of new city streets planned specifically for Centennial Yards.

McGowan echoed Lalani’s thoughts that the residential aspect is the most important.

“What downtown lacks right now is residential,” McGowan said. “We can build a ton of apartments because that’s what our downtown needs. It needs more people living there.”

The $500 million South Downtown project also has an ambitious goal to revive an entire neighborhood within downtown using nothing but the historic building stock. One of the first projects for South Downtown is the restoration of 222 Mitchell St., a massive midcentury-modern structure that once served as a bank processing center.

The former C&S Bank facility accumulated decades of grime while it was vacant, and Newport has been pressure-washing the exterior in recent weeks, said Brooke Dewey, managing director at JLL who is handling the office leasing. Next, Newport plans to restore the interior for creative office space.

Across the street, Newport is also restoring Hotel Row, a collection of 1920s structures that once housed hotels like The Sylvan. In total, Newport acquired four dozen historic buildings, totaling 800,000 square feet, and a handful of surface parking lots.

Whether all these downtown projects are successful will depend, at least in part, on improving transportation connections.

Downtown Atlanta is somewhat difficult to access by car, so it’s essential that the Metropolitan Atlanta Rapid Transit Authority’s Five Points station, the city’s busiest subway station, be modernized and improved, McGowan said.

“You’ve got to make it easier for people on the outskirts of the city to get here,” he said.

MARTA is planning a $200 million restoration to improve passenger access to trains and buses and to remove a bulky concrete canopy that covers the structure. The agency recently received a $25 million grant for the planned upgrades to the Five Points station, which opened in 1979.

The station's renovation is expected to help the new downtown developments and make it easier for the thousands of workers and students who commute downtown during the week.

Federal and state government agencies occupy huge amounts of office space downtown, including the Georgia Capitol, courthouses and the 1.5 million-square-foot Sam Nunn Federal Center.

The 53,000-student Georgia State University has expanded downtown both through acquisitions and construction of new buildings, feeding thousands of students to live in its downtown dorms.

The three major developments could exponentially increase the number of permanent residents and workers downtown, Gene Kansas, a longtime Atlanta commercial real estate broker, told CoStar News. Visitors may not be able to see it now, as work is in the early stages for all three projects, but the time feels right for downtown to finally rebound, he said.

“It’s hard, even for commercial real estate professionals, to see something that doesn’t exist yet,” Kansas said. “But I think this is going to happen now.”

Centennial Yards: Foster + Partners and Perkins & Will produced the master plan. Architecture firms working on the project include Skidmore, Owings & Merrill; Goode Van Slyke; Cooper Carry; Choate + Hertlein; Stevens & Wilkinson; and Studio H. Kimley-Horn, Sykes Consulting and Lowe Engineers are performing engineering work.

South Downtown: Balfour Beatty is the general contractor. S9 Architecture & Engineering, BLDGS Architects and SSOE Group are the architects. Brooke Dewey and David Horne at JLL are in charge of office leasing. Coleman Morris and Iggy de Quesada at JLL are the retail leasing agents. Morris, Manning & Martin LLP is the legal counsel.

Underground: Niles Bolton Associates is working on a master design plan. Impact Development Management is a design consultant. Kimley-Horn is the civil engineer.