The Atlanta retail market continues to thrive with significant growth driven by a combination of strong demand, minimal new construction and low inventory levels. Long regarded as a key hub for commerce in the Southeast, metro Atlanta has seen its population increase rapidly over the years, which has, in turn, bolstered retail demand.
As a result, Atlanta’s retail availability has hit record lows and has created a competitive market for tenants looking to secure high-quality spaces. Rental rates have increased, and investment sales volume has continued at a healthy pace as tenants vie for a limited amount of inventory.
Rising rents, investment sales
One of the standout trends in Atlanta’s retail market is the consistent increase in rental rates. Retail rents in the metro area have grown steadily over the past few years, with average rents rising from $21.07 per square foot in first-quarter 2023 to $22.83 per square foot by third-quarter 2024. This represents an impressive 5.2 percent year-over-year growth, significantly outpacing the national average of 2.4 percent. The city’s growing population and economic development have spurred greater demand for retail spaces, especially in high-traffic areas. Retailers are willing to pay premium rates to secure space in desirable locations, contributing to the overall rent escalation.
In the investment market, retail properties in Atlanta have continued to attract strong demand, even in the face of elevated interest rates and construction costs over the past two years. Investors are drawn to the city’s population growth, economic diversity and the limited supply of new retail construction. For example, the average sale price per square foot has increased by 6 percent to $222 over the past year. Meanwhile, cap rates have compressed slightly, falling from 7 percent to 6.9 percent.
Atlanta’s position as a top five U.S. market for retail property sales further highlights its appeal to both domestic and international investors. Metro Atlanta recorded $2.5 billion in retail property sales over the past year, reflecting a stable level of transaction volume. The continued increase in prices and compressing cap rates suggest that demand for retail assets remains strong.
Low availability
One of the most significant challenges facing Atlanta’s retail market is the limited availability of new, high-quality retail space. The city’s retail availability rate currently sits at 3.8 percent, a figure that is not only lower than the national index of 4.7 percent, but also 250 basis points below the city’s 10-year historical average. This tight supply is primarily driven by strong tenant demand that has far outpaced the rate of new construction.
The slowdown in new retail construction has exacerbated the supply shortage. Over the past year, the total amount of retail space under construction has steadily decreased, dropping from 2 million square feet in first-quarter 2023 to just 738,000 square feet by third-quarter 2024. This limited pipeline represents only 0.2 percent of Atlanta’s existing retail inventory, making it difficult for new tenants to find suitable locations. Of the new retail developments currently under construction, around 75 percent has already been preleased by national retailers, leaving a small portion available for others in the market.
The scarcity of available space is especially evident in newer, Class A properties. In fact, 91 percent of Atlanta’s retail space was built before 2011, leaving just 8 percent of the current inventory classified as Class A. Moreover, the availability rate for Class A properties is only 2.4 percent, making it increasingly difficult for tenants to find modern, well-located spaces. This shortage has created significant challenges for tenants to enter the market or upgrade from older, outdated properties.
Outlook
Metro Atlanta is experiencing the third-largest population growth in the country, and this influx of new residents is expected to drive retail demand across a range of sectors from grocery and dining to entertainment and lifestyle. As retail tenants and investors look to the future, the outlook for Atlanta’s retail market remains positive.
The city’s combination of economic diversity, population growth, and strategic location in the Southeast supports the argument that Atlanta will continue to be a prime destination for retail development and investment for the foreseeable future.
— By Ben Barrett, analyst at Bull Realty. This article was originally published in the October 2024 issue of Southeast Real Estate Business.