Improving Retail Fundamentals Show Bright Future for Atlanta
With an economy that's normalizing with improving fundamentals, the Atlanta retail market is on the right track for sustained growth.
Throughout 2013, Atlanta experienced a drop in vacancy rates along with the unemployment rate. In addition, retail sales rose nearly 3.5 percent over last year, provoking a rise in consumer confidence.
The unemployment rate in Georgia fell from 9 percent in 2012 to 8.3 percent in 2013. This is still a full point below the national average. For 2014, the unemployment rate in Georgia is expected to reach well under 8 percent. During the last 12 months, Atlanta has experienced job growth of 2.5 percent.
Retail payrolls are also expected to continue improving in 2014, pushing a near 3 percent gain as a result of both increasing existing stores sales as well as modest new store opening growth.
Vacancy Rates, Rent Growth
Since the beginning of the year, overall metro retail vacancy rates have dropped below 11 percent, which is a 50 basis point decrease over last year. Neighborhood and community retail centers still maintain the highest vacancy of just under 15 percent. Power centers have experienced a strong year-over-year recovery, averaging a 7.5 percent vacancy across the region. Tenant demand in the metro area’s strongest malls, however, has forced vacancy rates of just under 6.5 percent.
The power center rent growth has experienced the greatest gains, pushing a 3 percent increase over last year. Malls continue to maintain the highest average rates at $22.50 per square foot, which is a 2.5 percent increase over 2012. Neighborhood and community centers experienced a step backwards over last year’s 1 percent decline during 2012.
Rental growth will continue to increase as the lack of available space continues to diminish. 2014 and 2015 will have a greater percentage increase in rent growth than the percentage decrease in vacancy rates.
In metro Atlanta, construction is falling short of the need for space. The region has more than 1.5 million square feet planned primarily between three distinctly different mixed-use projects under construction.
Outside of these three projects, there are virtually no retail developments of critical mass projected to open through 2016. This is much lower than the past, considering the Atlanta market includes nearly 6 million people and nearly 349 million square feet of retail space. In 2006, 12 million square feet of retail space was delivered, compared to 2011 when more than 800,000 square feet was brought on line.
Ponce City Market is the redevelopment of the former Sears, Roebuck & Co. building, which will include 330,000 square feet of retail and restaurant space. Buckhead Atlanta, located in the Buckhead submarket, will include 300,000 square feet of high-end, luxury retail. Avalon, a lifestyle boutique mixed-use project in Alpharetta, will include 500,000 square feet of retail and restaurant space.
New, Expanding Retailers
The largest retail project to open in 2013 was a 158,000-square-foot Walmart Super Center, followed by 117,000-square-foot BJ’s, its fifth store in the state.
Outdoor retailers and “performance wear” continue to see growth locally and nationally. Athleta and lululemon athletica recently opened stores in Atlanta and project additional openings in the market.
Cabela’s has its first store in the market under construction. Academy Sports + Outdoors has continued to be active in the region and is expected to maintain a modest pace in 2014 and 2015. Dollar stores and auto parts continue to be strong growth retailers as well.
Food in all capacities remains a strong category, from raw product retailers to restaurants. Arizona-based grocery store Sprouts Farmers Market is new to the state with plans to open four stores next year and more in the years to come. At the other end of the spectrum there are many new franchisee quick service concepts competing to find prime locations.
For the right product, Atlanta is a seller’s market, with single-tenant properties and Class A portfolios in high demand. Like much of the nation, investors seeking value added assets will find limited listings for distressed and repositioning opportunities, as most of this product has been picked over and these properties have stabilized.
Downtown is one submarket that has tremendous velocity. Atlanta is an event city and has secured a number of major conventions through 2015 that will keep traffic robust. The Civil Rights Museum and the College Football Hall of Fame are both under construction in the city. The Atlanta Falcons also have announced a new $1 billion stadium, which is slated to open in 2017.
Though the Atlanta Braves recently announced its move to Cobb County, also planned for the 2017 season, this presents a tremendous redevelopment opportunity for Turner Field, the Braves current stadium. Certainly, we hope this opportunity will bring some of the brightest ideas to the forefront of downtown’s continued development.
— Emil Gullia, senior directore, retail tenant services, Franklin Street Real Estate Services