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Booming Atlanta Industrial Market Continues Surge Thanks to E-Commerce

Robinson Weeks signed a Fortune 500 company to a 1.02 million-square-foot lease at its Gillem Logistics Center master-planned development in Atlanta.

Atlanta is the logistics hub and economic engine of the Southeast, which is the fastest growing region in the country. Its 700 million square feet of industrial space makes it the fifth largest logistics market in the United States.

Traditionally, population and job growth are key drivers of industrial demand, and Atlanta has had strong growth in each. The metro added 78,000 people in 2017, or nearly 214 new residents every day, which is reminiscent of the solid population growth of the 1990s when Atlanta averaged nearly 100,000 new residents every year. Additionally, Atlanta has had solid job growth, growing 2.5 percent last year, second only to Dallas/Fort Worth among the 12 largest metro areas in the U.S.

David Welch, Robinson Weeks Partners

E-commerce has caused a surge in demand for industrial space that has benefitted the Atlanta industrial market. Online retail sales now make up over 9 percent of total retail sales, according to the U.S. Census Bureau, up from 5 percent in 2012. A recent report from Cushman & Wakefield stated that while e-commerce accounted for just 5 percent of leases in 2013, it now commands over 20 percent of all warehouse leasing.

As Amazon and others ramp up delivery times from two-day to same-day, the need increases for strategically located and modern warehouses to accommodate their size requirements. The fulfillment center warehouses need to have 36- to 40-foot clear heights, hundreds of auto parking spaces for their employees and hundreds of trailer storage spots. These specifications, as well as the need for larger building footprints, help drive the need for new buildings.

Studies have shown that these new generation fulfillment warehouses require three times the distribution space compared to old brick-and-mortar replenishment warehouses, adding to the demand for well-positioned warehouse facilities.

Record Absorption
The Atlanta industrial market continues to be one of the top markets in the country, with 2017 being a record-setting year. Atlanta led the nation in net absorption in 2017, with over 21 million square feet absorbed, nearly 5 million square feet more than 2016.

But it is the consistency of the demand over the last five years that has been most impressive. The market absorbed more than 83 million square feet during this timeframe, averaging just under 17 million square feet annually. With just over 48 million square feet delivered during this stretch, Atlanta’s vacancy rate has declined from 11.1 percent in fourth-quarter 2013 to 6.1 percent in fourth-quarter 2017, its lowest vacancy rate in over 20 years.

The first quarter of this year continued to be very healthy, with nearly 3.7 million square feet of absorption, on pace to match its five-year average by the end of the year.

South Atlanta Submarket
The South Atlanta submarket has accounted for nearly half of all the market’s absorption. Demand in this submarket is driven by users needing 1 million-square-foot and up buildings.

Notable big box deals executed in the last several months include ASOS, a British online fashion and beauty retailer, signing a 1.04 million-square-foot lease with Majestic Realty at Majestic Airport Center IV; Lindt, the Swiss chocolatier, moving into a little over 1 million square feet at Panattoni Development’s Lambert Farms Logistic Park development; Robinson Weeks Partners signing a Fortune 500 company to a 1.02 million-square-foot lease at its Gillem Logistics Center master-planned development; and Core5 Industrial Partners signing Saddle Creek, a third-party logistics provider, for just over 1.2 million square feet at its Southeast 85 Logistics Center.

With steady demand drivers and the added boost from e-commerce, developers have been aggressively taking down large land positions to deliver 1 million-square-foot facilities throughout the metro Atlanta area.

There are currently 11 big box buildings under construction that will deliver within the next 12 months, eight of which are located in the South Atlanta submarket. There are at least another dozen planned big boxes that are entitled and ready to start. Several of these developments are 25 to 30 miles or further outside the city center.

Beyond the Pale
“Beyond the pale” is an old English expression that refers to the part of Ireland under English rule in the 16th century. The “pale” was the closer-in, protected area that is about a 20-mile radius around modern day Dublin. If someone wandered beyond the pale or outside the boundary, they were on their own.

Established demand drivers and the positive e-commerce surge bode well for continued success in the Atlanta industrial market. However, those situated beyond the pale should be careful.

— By David Welch, President of Robinson Weeks Partners. This article was originally published in the May 2018 issue of Southeast Real Estate Business.

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