Atlanta Industrial Market’s Record Performance Drives Investment Demand
The Atlanta industrial market continues to grow in popularity when it comes to real estate investors’ appetite. Industrial assets are “hot items” in current investment sales transactions as the region’s economic momentum continues to position Atlanta as one of the healthiest industrial markets in the Southeast.
Some of the major local and macro-economic trends affecting the industrial market include the ongoing growth of infrastructure, logistics and manufacturing industries. Furthermore, the Port of Savannah’s new Post Panamax facilities, its ongoing investment and expansion plans and its increasing activity are also beneficial to the Atlanta industrial market.
Investment sales professionals, especially individual investors, remain attracted to Atlanta’s industrial market as e-commerce continues to transform how and where products are stored and shipped, not to mention the simplicity of owning and managing industrial properties, compared to retail and office.
In 2016, the Atlanta industrial market experienced over 17 million square feet of net absorption. The forecasted absorption for 2017 ranges between 12 and 14 million square feet, with approximately 12 million square feet of new product being delivered this year. Over 90 percent of the new product comprises warehouse/distribution product, and less than 10 percent consists of new flex and shallow-bay buildings.
Most of the large projects under construction are projected to be completed in 2017, including the Armada Warehouse Solutions building at Camp Creek Business Center in East Point (500,000 square feet) and Braselton Logistic Center in Braselton (1 million square feet). The new UPS logistic hub near Fulton County Airport (1.5 million square feet) and the Dollar General distribution center in Locust Grove (1.2 million square feet) are likely to be delivered in early 2018.
Consequently, with the completion of the majority of the large construction projects this year, the current vacancy levels are expected to continue to decline, as the ever growing demand absorbs both new and existing industrial assets.
South Atlanta and Northeast were the most active submarkets in 2016 in terms of new industrial construction, and that will remain the case for 2017. In terms of net absorption, the South Atlanta and Northwest submarkets comprised over half of the total net absorption last year.
Since 2014, industrial properties in metro Atlanta have traded at a strong and healthy velocity. The ongoing economic growth in our region and the new development activity in most submarkets indicate that trade volume will continue to remain high in the coming years.
In the last five years, we have seen a 30 to 40 percent increase on price per square foot in certain submarkets, which has squeezed cap rates to record lows. However, despite the recent and expected interest rate hikes by the Federal Reserve, cap rates are not expected to change drastically, mainly because there is still a healthy spread between the Treasuries and cap rates. Conceptually speaking, cap rates are expected to remain relatively calm for the rest of the year for both stabilized and value-add properties.
In general, we have seen both institutional and private buyers very active within the industrial market. Despite institutional investors typically being able to close quickly on properties, sometimes individual investors can find a competitive advantage by paying slightly higher prices for properties. Traditionally, institutional investors have more demanding underwriting parameters and economic expectations to justify the acquisition compared to individual investors.
Industrial rental rates have been going up in most of Atlanta’s submarkets. The current average rent has increased between 20 to 25 percent overall, compared to 2012. The strong demand in the industrial market is making us believe we will see a continuation of rent increases through the rest of 2017, at least at a rate that is in line with what we have seen in recent years.
As long as there is not a dramatic change in our economy, it seems the Atlanta industrial market overall will continue to maintain a strong and healthy position during 2017. Our location as the major logistic and transportation hub in the entire Southeast, including air, rail, road and water, will continue to pave the way for increasing opportunities in the industrial sector. In addition, the ongoing growth of the e-commerce, logistics and manufacturing industries in the area make the industrial market a very attractive proposition for investment sales professionals. Atlanta industrial assets are projected to remain popular, especially among investors seeking to diversify their portfolios, mitigate risk and maintain a healthy and balanced diet when it comes to their real estate appetite.
— By Leo Terrazas CCIM, Business Development Associate, Mimms Enterprises. This article originally appeared in the May 2017 issue of Southeast Real Estate Business.