Increasing vacancies mean increased worries for Atlanta’s commercial property owners, but also more options for the city’s tenants. How soon will the market regain some stability?
Office
The big uncertainty facing the 125 million-square-foot and 22 percent-vacant Atlanta office market in 2010 is whether or not increased leasing activity will outpace recession-induced tenant downsizing/rightsizing and result in occupancy growth.
On the demand side, the approximately 1.5 million square feet of leases signed during fourth quarter 2009 represented a nearly 30 percent drop from the previous quarter. Notable transactions inked include those by KPMG, with a multi-floor renewal at SunTrust Plaza in downtown Atlanta. In Buckhead, SunTrust Robinson Humphrey decreased its footprint, renewing 92,000 square feet at Atlanta Financial Center. In the suburbs, Cox Enterprises committed to approximately 95,000 square feet at 9000 Central Park, with its subsidiary, AutoTrader, in negotiations at 3003 Summit Blvd. for up to 400,000 square feet.
Meanwhile, increasing vacancy and downward pressure on rental rates are luring tenants into the market to search for deals. Major tenants checking out Atlanta space at the start of 2010 included Alston & Bird, with a 400,000-square-foot requirement; Kilpatrick Stockton (240,000 square feet); and an unnamed corporate relocation, dubbed “Project Lucy,” for at least 350,000 square feet.
Industrial
Responding to a substantial loss of occupancy in 2009, new construction has ground to a halt in the industrial market, leading many owners and landlords to hope that 2010 will be a year of stabilization and recovery.
Vacancy among industrial buildings spanning 30,000 square feet and larger in the 309 million-square-foot speculative portion of the market hit a whopping 19.4 percent at the end of 2009; this is the result of more than 4.7 million square feet of negative absorption during the year. Some 2.5 million square feet of that negative absorption occurred during fourth quarter, with seven of nine metro submarkets reporting negative absorption and only one (South I-75) enjoying a net increase in occupancy during the year as a whole.
Atlanta’s uninspiring 2009 industrial market was not completely devoid of deals, however. It closed out the year with leases that included Kraft Foods’ 969,150-square-foot build-to-suit at Majestic Airport Center in the Airport/South Interstate 85 submarket; product fulfillment provider Innotrac’s selection of 115,200 square feet at 180 Westridge Court in the Northeast submarket; and Ashley Furniture’s 113,460 square feet at 6855 Shannon Parkway. In the property sales arena, fourth quarter 2009 included the purchase of a 282,000-square-foot building at 2331 Mellon Court in the I-20 East submarket by AIC Ventures LP for $30 per square foot; and MR French Inc.’s Airport/South I-85 purchase of 119,617-square-foot 175 Tubeway Drive for $42 per square foot.
Atlanta’s industrial market is well positioned for at least a mild resurgence during 2010. Strategic location continues to make the metro area a must-see market for companies optimizing regional and national distribution systems. As the economy stabilizes and begins its recovery this year, so too will the Atlanta market.
Retail
Sluggish economic conditions and belt-tightening among consumers in Atlanta resulted in below-average sales volumes in the 2009 retail market. Slow stabilization is predicted for 2010.
As of the end of fourth quarter, this 179.5 million-square-foot market was approximately 12.32 percent vacant, up substantially from its 10.04 percent vacancy rate at this time last year. Among the various retail product types, metro-area lifestyle centers averaged a 19.7 percent vacancy at year-end 2009, followed by strip (16.2 percent), neighborhood (14 percent) and community (13.7 percent) centers.
Net retail absorption totaled a negative 597,758 square feet during fourth quarter, capping a dismal 2009 in which more than 1.7 million square feet of space emptied out. Quoted rental rates averaged $14.64 per square foot NNN at year’s end, down from the $15 level at the same time last year. Low demand and a lack of available funding have resulted in a slowdown in retail construction in the metro area. Square footage underway dropped from 2.5 million to slightly less than 380,000 square feet during 2009.
With low levels of demand for existing retail space, construction levels could well continue to decrease throughout 2010 as the market attempts to stabilize. It’s not going to be easy though: many national retailers have already announced scheduled store-closings that could translate into future quarters of negative absorption. Vacancy rates, meanwhile, will likely hover in the low double-digits for the next several quarters.
— Clark Gore is market director of the Atlanta office of Jones Lang LaSalle.