SOUTHEAST SNAPSHOT, JULY 2005

Atlanta Industrial Market

Development across Atlanta’s industrial market has accelerated considerably in the last year. As of the first quarter 2005, vacancy rates are between 12 percent and 16 percent throughout the market; this number varies among different market reports. However, these rates actually are not reflective of the trends in Atlanta, for as much as one-third of the city’s vacant space is older and functionally obsolete. In effect, these facilities don’t compete with the product that is being developed today, as they retain ceiling heights, sprinkler systems, truck courts and locations that tenants no longer find desirable.

Atlanta generally has seen an increase in speculative development, and many of the recent project undertakings in the market are of this persuasion. This trend reflects both confidence in the market as well as the expansion in available development capital. In Atlanta’s largest facilities currently under construction, only 3 percent of the space has been leased; still, due to the increased cost of steel, concrete and insulation materials, development budgets are 20 percent higher today than they were just 1 year ago. In effect, despite the rising costs, developers are tending to move forward with their projects because they fear further spikes in construction costs. On the other hand, expect most of the bulk facilities to lease relatively quickly due to the location and quality of space, as well as the increasing market for high-quality facilities.

Most of the current development is taking place in Atlanta’s historically strong industrial sectors: along the Interstate 85 corridor in the northeast; along Interstate 20 from Fulton Industrial Boulevard; as well as to the west of the city and in the south toward Henry County. Additionally, the Atlanta Airport submarket continues to expand as a major air cargo hub. Each one of these submarkets offers convenient access to large segments of the nation through major distribution arteries.

Effecting from the increasing development in these sectors, activity has moved further out along each of these corridors. The bulk of large-scale construction is occurring in Atlanta’s Northeast submarket, including the northern edge of Gwinnett County. Facilities are under construction in Buford and Suwanee located within Buford Distribution Center, Golden Park Commerce Center and Hamilton Mill Business Center, among others. Out to the west of the city, Douglasville and Lithia Springs are seeing most of the activity. The largest projects in this sector are in Camp Creek Distribution Center, Douglas Hill Business Center and New Manchester. In addition, CB Richard Ellis recently completed a 913,000-square-foot build-to-suit for Pepsi in the Fulton Industrial submarket. Furthermore, the two largest buildings under construction on the south side of Atlanta are located within Southpark and Ellenwood.

Throughout the entire Atlanta market, there is a sense of rebound, as product demand has returned and market rental rates have reached their lowest point. Resulting from the endeavor toward economic recovery that is being pursued throughout the Southeast and across the country, in conjunction with Atlanta’s traditional strength as a major distribution hub, the industrial market’s future continues to look strong. Expect market dynamics this year to continue to build on the successes achieved in 2004; so long as development doesn’t fly out of hand and product demand continues to decline, vacancies should decrease slowly, leading to a rise in market rental rates.

— John Porter, senior vice president, CB Richard Ellis Atlanta


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