The Atlanta retail market took a slight hit in the second quarter of 2011, but is still seeing improvement. Although available space in areas is starting to fill up, absorption in the second quarter of 2011 fell from positive absorption of 648,692 square feet in the first quarter to negative absorption of 726,174 square feet, according to CoStar Group’s Mid-Year 2011 Atlanta Retail Report. However, the vacancy rate only rose slightly, from 10.1 percent to 10.4 percent.
Greg Eisenman, associate with Colliers International’s Atlanta office and a member of the Retail Services Group, says many tenants are looking to do deals. While speculative development is on hold, he expects the available amount of space to drop.
Tony Cerniglia, vice president of retail services with CB Richard Ellis’ Atlanta office, says recovery has been spotty, although there are pocketed areas of the city that are doing well.
Buckhead, Midtown and Cobb County have seen the most traffic, which Cerniglia says is not surprising because of the solid demographics and good locations. Some retailers have even been competing for space in these markets.
Cobb County has seen some leasing traffic. In fact, according to Colliers International’s Atlanta Retail Market Report, the two largest lease transactions to occur in the first quarter of 2011 were in Cobb County. L.A. Fitness signed a 27,136-square-foot lease at Terrell Mill Village in Marietta, and American Backyard leased 18,000 square feet at Barrett Pavilion in Kennesaw.
The bright spot in the Atlanta retail market for the first half of 2011 surrounded the sales of centers and mixed-use developments currently under construction, which will add new and repositioned additional retail space to Atlanta during the coming years.
CoStar reports that in the first quarter of 2011, 45 sales transactions totaling more than $173.25 million occurred, a sizable increase from the first quarter of 2010 when only 34 transactions totaling more than $41.53 million took place.
The largest sales so far this year include Buckhead Atlanta, Atlantic Town Center and Ponce City Market, which will deliver more than approximately 2 million square feet of new and repositioned retail space during the coming years.
In Buckhead, leasing efforts have been re-engaged for the 6-block, 8-acre, mixed-use project Buckhead Atlanta, formerly known as The Streets of Buckhead, which is currently under construction. Oliver McMillan closed on the acquisition in May, which upon completion in 2013 will feature more than 375,000 square feet of luxury retail. The firm is evolving architectural plans in addition to re-starting leasing efforts, and will add an additional $300 million investment to complete the project on which $400 million has been spent to date.
In early 2011, the 586,000-square-foot Atlantic Town Center in Midtown, the retail component of Atlantic Station, was purchased by a joint venture between North American Properties and CB Richard Ellis. A Publix supermarket and United Artist’s movie theater anchor the center, with IKEA, Target and Dillard’s as shadow anchors bringing the total square footage to more than 1.3 million. The joint venture is rebranding the retail component to attract new retailers, and stores such as White House | Black Market and American Eagle have already closed. In mid-June, an open-air retail market called the 1/2 Street Market opened at the center, to be held the second weekend of every month.
Additionally, Jamestown Properties acquired the 2 million-square-foot Ponce City Market, formerly known as City Hall East in July. The project will receive a $180 million, 1 million-square-foot redevelopment, which will include more than 300,000 square feet of retail space upon build-out. The first phase is anticipated for completion in the first quarter of 2014.
“These projects have the potential to create major change to three very key retail trades areas in Atlanta,” says Eisenman.
While sales and leasing of ‘A’ properties have been picking up, the ‘B’ and ‘C’ properties are still struggling, in part because of a lack of financing and location. Grocery-anchored centers will continue to be popular for investors because of their predictability, and discount retailers and fast-casual restaurants continue to thrive according to Colliers.
For the coming months, Cerniglia predicts the recession will continue to impact the retail market through consumer spending and the way retailers do business.
“Consumer buying habits have changed,” he says. “I don’t think that’s a temporary change and it will effect retailers. The retailers who have survived have done so by squeezing efficiency out of their businesses and by employing less people and moving into smaller spaces. Long-term we will see retailers refueling their plans.”
The immediate future of the Atlanta retail market remains at the mercy of the national economy and its effect on consumer spending. A steady flow of activity will continue as retailers’ needs evolve and landlords and developers react accordingly to these changes in demand, Eisenman says.