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Bart Plunkett
The industrial real estate sector may not get the attention of some of its more glamorous cousins, such as the office and retail markets, but the sector is in the midst of a healthy recovery. Nationally, vacancies are dropping, rents are rising and — perhaps most strikingly — new construction is taking place.
Of course, the emergence of new construction isn’t unique to the industrial market. Inspired by the thriving multifamily sector, developers are breaking ground on new apartment communities. But while concerns about multifamily over-development already have taken hold in some quarters, the construction of new industrial facilities in Atlanta, the Southeast and throughout the nation appears ready to unfold at an appropriate and significant pace for several years to come.
Healthy Vital Signs
Industrial real estate’s improvement during the past couple of years led Cassidy Turley to conclude the following in its most recent report on the market: “The U.S. industrial sector is moving into robust territory.”
The U.S. industrial vacancy rate dropped to 8.5 percent at the end of the first quarter, its lowest mark in four years, according to Cassidy Turley, and 42.7 million square feet of industrial space was under construction when the first quarter concluded, a whopping 61 percent increase from the same period one year earlier.
The same general trends are at work in Atlanta. According to data research firm CoStar Group, the metro area’s industrial vacancy rate stood at 12.1 percent at the end of the first quarter, down from 12.5 percent at the end of the fourth of quarter 2012. Asking rents jumped 1.3 percent during the same time frame, and 2.9 million square feet of industrial properties were under construction at the end of March, compared with 1.6 million at the end of December.
In more encouraging news, the South experienced the most industrial demand of the four Census regions during the first quarter, and Atlanta ranked second among the 68 largest metropolitan areas, with 2.4 million square feet of positive net absorption, according to Cassidy Turley.
Continuing Construction
Conditions are conducive to new construction, and here are some of the reasons we should continue to see healthy amounts of new industrial construction nationally, and in particular Atlanta and the Southeast.
• Residential Housing — The U.S. housing markets, after spending the past half-decade in a deep freeze, finally appear to be thawing out. As the Cassidy Turley report notes, “New housing construction rose 28 percent in 2012 to a pace of 900,000 homes for the year, and that pace could potentially double over the next few years.”
A thriving home construction market would have a hugely beneficial impact on the demand for new industrial properties, as homebuilders would need more warehouse space to store growing inventories of construction materials.
• New Neighbors — PulteGroup, the nation’s largest homebuilder, announced in May that it’s moving its headquarters from Detroit to Atlanta. The news was just the latest success in the efforts of Georgia Gov. Nathan Deal and state officials to lure new industry and businesses to the state. Caterpillar’s new facility in Athens, Ga., is another example. Overall, the successes are coming at such a pace that the demand for new industrial properties will be strong during the next several years.
• Deeper Waters — The completion of the Panama Canal expansion and the deepening of the Port of Savannah would have a powerful effect on manufacturers in the Southeast and mid-Atlantic and should lead to significant new demand for industrial properties throughout the region.
The Panama Canal expansion is currently scheduled for completion in 2015 and should provide regional manufacturers with more access to thriving markets in Asia. The Port of Savannah already is one of the busiest ports in the country, but its shallow depth means too many ships have to wait until high tide to enter or exit. A deeper port would result in more container traffic and spur demand for more warehousing and distribution centers in the Southeast.
As I mentioned upfront, industrial real estate often gets overlooked. But the property sector’s recent recovery and likely uptick in new construction are worthy of note for the investment community.
— Bart Plunkett is a senior vice president at Manhattan Construction Co., which builds a variety of projects – including corporate headquarters, retail facilities, sports stadiums and healthcare facilities – across the United States, Mexico, Central America and the Caribbean. He oversees the firm’s Atlanta office.