It looks like 2016 is carrying on where 2015 left off. During 2014 and 2015, Atlanta set record after record for activity, positive net absorption and new construction; and the first quarter of 2016 didn’t disappoint.
Activity during the first quarter of 2016 was over 13.5 million square feet, which contributed to a four-quarter total of 59.3 million square feet — the highest four-quarter total for activity ever seen in the Atlanta industrial market. We also witnessed the 16th consecutive quarter of positive net absorption with 3.1 million square feet of space absorbed during the quarter.
Sim Doughtie, King Industrial Realty/CORFAC International
Added to the last three quarters, net absorption totaled 16.5 million square feet of positive net absorption. Even with a large industrial inventory of 642 million square feet, that’s a significant achievement.
Demand for warehouse and distribution space is fueled by Atlanta’s continued economic growth and employment. Unemployment in the Atlanta metro area is 6.1 percent and down from 6.3 percent that we reported last October (U.S. Bureau of Labor Statistics).
Although construction slowed during the fourth quarter of 2015 with only 1.5 million square feet launched, it was only a short lull. New construction moved forward again for the first quarter of 2016 with over 4.7 million square feet put in motion.
The remarkable part of the story, however, lies in the after-effect all of this activity, positive new absorption and new construction has had on the availability rate. Over the past nine quarters, Atlanta has completed or is underway with more than 36.8 million total square feet of new construction. During that same period, the percentage of available industrial space in the Atlanta area actually fell from 16.4 percent down to 13.3 percent. Of the 17.6 million square feet of new construction initiated over the last four quarters, 66 percent, or more than 11.6 million square feet, was speculative construction with the remaining 34 percent, or almost 6 million square feet, attributed to build-to-suit projects.
New construction in the form of redevelopment continues to be a factor in the Atlanta industrial market as well.
In addition to the rezoning and redevelopment to industrial of Shannon Mall in Union City and Fort Gillem in Forest Park, we are beginning to see the razing and rebuilding of functionally obsolete industrial buildings. For example, 2110 Lawrence St. on the south side of Atlanta is saying farewell to the 500,000-square-foot, 15-foot ceiling, 1954-structure with 20- by 30-foot column spacing to make way for a brand new facility with 32-foot ceilings and 50- by 50-foot column spacing. A similar project will be underway soon at 3101 McCall Drive in Doraville. The lack of available land close-in, combined with the age and obsolescence of many of Atlanta’s industrial buildings, makes this a trend we might see more of.
Demand and activity continued to be strong in the first quarter of 2016, which led to substantial positive net absorption, which in turn ushered in the requisite increase in new construction. The momentum of the past two years laid the groundwork for the Atlanta industrial market to continue onward and upward.
The hottest submarkets in the Atlanta industrial market for total activity the past four quarters were the I-20 West/Fulton Industrial submarket with 27.2 percent of all of the activity, the I-85 Northeast submarket with 23.8 percent and the Airport/I-75 South submarket with 12.7 percent. These three submarkets combined accounted for almost 64 percent of all of the activity in the Atlanta industrial market during the last four quarters.
In terms of positive net absorption, the hottest submarkets during the past four quarters were those same three submarkets. The I-20 West/Fulton Industrial submarket led the way with 45.7 percent of all of the positive net absorption, followed by the Airport/I-75 South submarket with 13.4 percent and the I-85 Northeast submarket with 11 percent. These three submarkets accounted for just over 70 percent of all of the positive net absorption in the Atlanta industrial market during the last four quarters.
Some of the transactions that were consummated in these submarkets include:
* Google/Menlo Logistics — 1.13 million square feet — Fairburn
* DSC Logistics/JM Smuckers — 1.04 million square feet — Fairburn
* Exel/Keurig — 987,840 square feet — Union City
* Exel/Bayer — 800,000 square feet — McDonough
* ES3, LLC — 700,000 square feet — Lake City
* Best Buy — 461,700 square feet — Buford
* Office Depot/Office Max — 414,960 square feet — Buford
Essentially, new construction continues its strong run due to the high demand for new space by users and the lack of supply of high-tech facilities. New construction is also being influenced by the banking industry, which continues to lend 65 percent non-recourse loans to developers for spec construction. Investors (domestic and foreign) are buying well located, leased projects with good credit tenants at sub-6 percent cap rates.
As long as the U.S. economy in general and Atlanta-area economy specifically maintain growth, Atlanta’s industrial market is expected to continue its expansion with added inventory and occupiers in similar fashion.
— By Sim Doughtie, SIOR, CCIM, President, King Industrial Realty/CORFAC International. This article originally appeared in the May 2016 issue of Southeast Real Estate Business.