The Atlanta industrial market needs very little validation when it comes to answering the question “Why Atlanta?” More than a dozen companies started or based in Atlanta have grown over the past decade to valuations above $1 billion. Metro Atlanta had the second highest rate of job growth in the nation among large metro areas (6.7 percent), according to the U.S. Bureau of Labor Statistics.
So rather than ask “Why Atlanta,” the better question is “Where in Atlanta?” As the Southeast’s population continues to grow, the metro Atlanta area continues in equal parts to add density to its thriving urban core as well as expand its suburban reach.
With limited geographic barriers to development, outlying towns are quickly becoming absorbed into the definition of the Atlanta area. This persistent growth is placing demand on industrial space at an all-time high, requiring a nuanced view of site selection within the Atlanta MSA.
The four corners of the Atlanta market reach nearly 60 miles from the urban center in each direction along highways I-75 and I-85, with new speculative projects under construction as far out as Adairsville, Commerce, Locust Grove and La Grange. Its breadth now includes Bremen and Rutledge in either direction along I-20. Regional population centers throughout the Southeast can be reached within one day’s drive from these Atlanta area locations, but there is a substantial transportation cost differentials associated with which corner of the city a developer chooses to locate a distribution center.
Inbound and outbound logistics will have a major influence on the transportation cost attributable to a given location. For importers coming from Savannah, the south side of the city along I-75 is a first choice from the inbound logistics side of the equation, but the outbound side has to navigate the traffic and congestion of the city center in order to reach the large consumer base of the northern suburbs.
Regional distributors have found favor with big-box locations along I-85 North and South that offer a compelling value proposition of lower rents and abundant labor. However, these markets have now matured to the point that rents are on the rise and the labor supply is reaching a limit. Production support-oriented projects will look to land in close proximity to major manufacturing sites — recent announcements include SK Innovation, Rivian, Qcells, Hyundai and Kia — which are all located outside the radius of existing development projects.
With industrial vacancy at an all-time low coupled with rising construction costs and interest rates, there is significant supply-side pressure on rents. One tactic to combat the price escalation for occupiers will be to continue to locate further from the city center into more rural locations that offer inexpensive land and less competition in the labor market. One problem with this is that infrastructure and transportation costs could outweigh these other savings.
Another reality of rising rental rates is the ability for developers to underwrite development in infill locations. This would otherwise be cost prohibitive, offering new product in well-established and highly desirable locations, but at a premium rental rate.
As much as we real estate professionals would like a deal to come down to the lowest rental rate, the total cost of occupancy associated with a location is the metric used by supply chain organizations in making their decisions. At what point will the scales tip toward redeveloping underutilized locations and more challenging infill sites versus the historical method of stretching the boundaries of the metro area?
For the industrial developer, the risks are considerable at either end of the spectrum, and time will tell over this next cycle which outlying locations prove to be too far to justify and which infill sites will prove too ambitious.
By Steven McGee, Vice President of Southeast Development, Rockefeller Group. This article was originally published in the May 2023 issue of Southeast Real Estate Business.