Atlanta’s Industrial Market Reaches All-Time Low Vacancy, Despite Strong Pipeline
The industrial market in Atlanta continues to surge, benefitting not only from its role as a key regional distribution hub, but also from the rapid growth in the metropolitan area itself. Atlanta is the economic engine of the Southeast, which also happens to be the fastest growing region in the country.
The Atlanta industrial market recorded just over 18 million square feet of net absorption in 2018, the second highest total on record following the 21 million square feet absorbed in 2017. The market has experienced 30 consecutive quarters of positive net absorption resulting in an all-time low vacancy rate of 5.7 percent, even though the market delivered more than 13.4 million square feet in 2018.
The first quarter of 2019 recorded net absorption of slightly over 1 million square feet, not as impressive as prior quarters over the last several years. So has the market peaked or demand stopped in Atlanta? Not by a long shot.
According to research from JLL, there are 5.7 million square feet of signed deals that have yet to commence and companies have yet to move into their new space. This absorption will be picked up throughout 2019. Further, JLL is tracking an additional 42 million square feet of space for tenants in the market — a similar number to the last two years, which bodes well for the balance of 2019.
But what has been most impressive is the consistency of demand over the last five years. According to CBRE, the Atlanta market has absorbed 91.2 million square feet during this timeframe, or just over 18 million square feet average per year.
With 66.6 million square feet of deliveries during this same time frame, there was a 26.4 million square foot imbalance of demand as compared to supply, resulting in the vacancy rate declining from 8.1 percent in 2014 to 5.7 percent at year-end 2018, its lowest vacancy rate in over 20 years.
Robust leasing activity
Several notable companies signed leases in the first quarter of 2019. Trane U.S. Inc. moved into just over 400,000 square feet in Southmeadow Distribution Center, Blue Buffalo took 408,195 square feet in Westridge Logistics Center in McDonough and Pop Displays took just under 337,000 square feet in Duke Realty’s Camp Creek Business Park.
The largest deal completed in the first quarter was PVH (formerly known as Phillips-Van Heusen) inking a 982,777-square-foot lease at Red Rock’s Shugart Farms development in Palmetto.
With the vacancy rate at a historic low, developers have started a pipeline of supply that is likely to reach just over 18 million square feet, which would be a record high for this market. This amount of new construction would place Atlanta in the top five nationally.
Several of the larger buildings under construction include Ridgeline’s 1.1 million-square-foot build-to-suit for Haier on Steve Reynolds Industrial Parkway; Robinson Weeks Partners’ more than 1 million-square-foot Gillem No. 900 building at Gillem Logistics Center; PNK Group’s 1.1 million-square-foot building at Southern Gateway at Lambert Farms and Prologis’ 925,800-square-foot development at Riverwest Distribution Center.
Despite this increase in new supply, demand for logistics space continues to increase in Atlanta as overall job growth and consumer demand rise. Atlanta remains near the top for job creation and population growth in the country.
Of particular note of late is the steady rise in the logistics infrastructure in Atlanta. The network of regional package delivery and fulfillment centers continues to spread its footprint throughout metro Atlanta, providing a robust and efficient delivery system.
UPS just completed its new $400 million, 1.2 million-square-foot regional packing center in Atlanta’s westside. Amazon recently broke ground on a new fulfillment center in Atlanta’s Northeast submarket, and FedEx is reportedly scouting the market for a new 1 million-square-foot regional packaging facility.
Atlanta’s road infrastructure has been supercharged by $10 billion worth of ongoing statewide transportation and improvement projects, including 150 miles of additional vehicle capacity around metro Atlanta.
The fundamentals for the Atlanta industrial market are strong and the outlook is favorable. Consistent demand over the last five years has powered the market to record absorption and historically low vacancy.
The rise in the logistics infrastructure combined with solid job creation and population growth create an environment where developers are comfortable delivering more supply.
— By David Welch, president at Robinson Weeks Partners. This article originally appeared in the May issue of Southeast Real Estate Business.