Because of its prime location and multitude of amenities, Atlanta continues to make the best of current conditions. On the industrial side, development is slow and owners are struggling to backfill space. As with most cities, the multifamily market continues to fight rising vacancy rates due to declining employment rates. There are, however, some new multifamily projects of note in the city of Atlanta. The office market, still hurting somewhat from the dot-com failures, is benefiting from the relocation of companies to the city. The retail market is a bright spot, with a large amount of activity currently going on. With more than 150 million square feet of speculative retail space, Atlanta contains one of the largest concentrations of retail shopping in the United States — ranking after Los Angeles and Chicago, according to Mike Crawford of Bullock Mannelly Partners.

Industrial

With metro Atlanta’s industrial vacancy rate hovering around 14 percent, as well as moderate tenant activity, owners are being pressured to backfill their vacancies at all costs. Real estate investment trusts are focused on maintaining occupancy levels to maintain earnings. Private firms are looking to get deals done to live another day. Lease rates are down 15 to 25 percent, concessions are up and less emphasis has been placed on tenants’ credit.

On the investment side, long-term bulk leases with credit tenants are fetching sub-8 percent cap rates. Because investors are flush with cash, properties previously viewed as Class B due to lease-up risk, leases without credit and/or inferior building specifications are now receiving much more attention. These buildings are trading between the low- to mid-9 percent cap range for new product up to the low- to mid-10 percent cap range for solid second-generation buildings. It has become a sellers’ market. The problem is, sellers are not really selling. Interest rates are allowing owners nearly twice the lease-up time as underwritten. Many are willing to ride out the recession, take their chances and create their own value through future lease-up.

Development continues, albeit at a much slower pace. Surprisingly, one of Atlanta’s most active submarkets for development is the Interstate 20 West/Fulton Industrial area. Last year, Panattoni built and then leased a 408,600-square-foot facility to Acuity Specialty Brands. First Industrial did the same with a 520,000-square-foot building, ultimately leasing it to MayTag, and IDI leased 172,000 square feet to Nioxin. Mostly recently APL announced its 900,000-square-foot campus to be built by Cattellus.

With this kind of activity in a 60 million-square-foot submarket with little or no new state-of-the-art bulk product, further development continues in the I-20 West/Fulton Industrial submarket. Panattoni is building a 375,000-square-foot bulk distribution facility, Opus is building a 392,000-square-foot distribution type product and Carter has completed a 402,000-square-foot facility.

Developers around Atlanta are actively securing new land opportunities for the next wave of development. On the west side of Atlanta, IDI and Opus have acquired property for their new parks, but the most hotly contested submarket for land is in Atlanta’s Airport market. Majestic Realty has purchased 210 acres off of South Fulton Parkway to build bulk product, Oakmont Industrial just closed on 42 acres for development of both distribution and shallow-bay product, and Republic Property has 23 acres under contract to build freight-forwarding space. Land located close to Hartsfield International Airport is at a premium due to the lack of inventory. There are only a few infield sites for bulk that can be purchased in the $30,000 to $45,000 per acre range while freight forwarding sites can warrant as much as $150,000 to $175,000 per acre.

The war with Iraq and the uncertainty that it brings to consumer confidence and the financial markets has most of Corporate America sitting on its hands. But Atlanta will continue to benefit because of its prominent location as the distribution hub of the Southeast. Real estate costs are among the lowest in the country, and Georgia being a “right to work” state only adds to the savings that users can realize.

- Chris Tomasulo, assistant vice president, Colliers Cauble & Company

Office

With vacancy rates in the high teens and development slowing to 2.2 million square feet during 2002, Atlanta is finding life outside the tech bubble a little on the cold side. One of the benefactors of the late 1990s tech surge, Atlanta was buoyed by companies like MCI WorldCom, Nortel, Alltel and BellSouth. When the bottom dropped out, the North Fulton submarket — where a lot of the companies peripheral to the dot-com craze were located — was hit the worst, followed by the Midtown and CBD markets.

The vacancy story is being played out around the country, and Atlanta is not much different: companies are scaling back operations and either carrying phantom space or throwing sublease vacancies on the market at deeply discounted rates.

So what are the bright spots?

For developers and brokers, the large consolidation requirements that emerge every so often offer good news. Most recently, BellSouth combined its operations into three sites, all along the MARTA (Metropolitan Atlanta Rapid Transit Authority) rail lines. The sites also contain retail and residential components.

Out-of-state relocations also bring jobs and opportunities for the local real estate community. The most highly publicized of these may be Newell Rubbermaid relocating its 300,000-square-foot corporate headquarters from Illinois to the North Fulton submarket.

As for the future, the big trend may be mixed-use development. Atlanta isn’t anti-growth, but it is anti-traffic. In fact, the federal government has put a moratorium on funding for road improvements until the city improves its air quality. In response, groups like the Atlanta Regional Commission have led the charge in recommending live, work and play environments to reduce traffic congestion. Where mixed-use developments used to be confined to Buckhead and Midtown, they are now occurring in North Fulton County, the Central Perimeter and the Cumberland/Galleria markets. Projects include Pope & Land Enterprises’ recently completed Milton Park, the first mixed-use project in recent memory in North Fulton.

- Todd Yates, senior vice president of national development, The Alter Group

Retail

In 2002, the overall retail vacancy rate in Atlanta increased from 9 to 9.6 percent as 4.1 million square feet of retail space was delivered and an additional 2.5 million square feet was started. The largest property delivered last year was Town Center, a 722,000-square-foot power center developed by The Sembler Company and located in the city of McDonough in Henry County. This significant new development, designed by architect Designworx, includes a privately owned SuperTarget, Home Depot and Belk as well as a BJ’s Wholesale, Ross Dress for Less, Marshall’s, Staples, Michaels and Bed Bath & Beyond. Henry County has grown dramatically over the past several years as evidenced by the quick lease-up of the center, which surpassed 95 percent within a few months. Ultimately, the center will include nearly 100 stores and restaurants in the main center and accompanying outparcels.

Atlantic Station, the 140-acre mixed-use development in Midtown, is poised to begin construction on the first phase (800,000 square feet) of retail this summer. Regal/United Artists Entertainment has signed on to build a 16-screen theater, featuring approximately 4,000 stadium seats, wrap-around screens and a street-level box office. In addition, Dillard’s has signed a letter of intent to purchase land for a three-level, 225,000-square-foot department store, which represents the first new department store to be built in the Atlanta CBD in 50 years. Also, a variety of restaurants in all price points (from fast-casual to white tablecloth) will be located throughout the development, including California Pizza Kitchen, Mama Fu’s Noodle House, Moe’s Southwest Grill and Claddagh Irish Pub. When completed, Atlantic Station, a project of Jacoby Development and AIG Global Real Estate, will contain approximately 15 million square feet of residential, office, retail, entertainment, restaurant and hotel properties.

- Mike Crawford, Bullock Mannelly Partners

The re-branding of Rich’s and Macy’s is altering metro Atlanta’s retail landscape. Bloomingdale’s is entering the Atlanta market this fall, replacing the Macy’s stores at Lenox Square and Perimeter Mall. Five other Macy’s stores will close and the Rich’s stores will become Rich’s-Macy’s. Local shoppers hope that Dillard’s will continue its aggressive expansion and fill the void left behind.

The declining department store industry and a questionable economy have stalled development of a proposed mall in Forsyth County for 6 months to a year. Neiman Marcus had signed on as an anchor tenant at Forsyth Commons, the 1 million-square-foot mall proposed to be built along Georgia 400 between Union Hill and McFarland Roads. Finding additional anchors proved difficult for The Rouse Company, so the developer has pushed the project debut to 2006.

Cousins Properties’ retail division is working on a mall-sized project in Henry County, the second-fastest growing county in metro Atlanta (behind Forsyth). The developer is working on another Avenue concept shopping center off of the Jodeco Road interchange at Interstate 75. Simon Property Group is also said to be interested in building an open-air mall along the same I-75 corridor. A proposed new interchange at Bethlehem Road and I-75 would offer additional development options. Cousins will open its 210,000-square-foot Avenue West Cobb on Dallas Highway this fall, the company’s third Avenue concept in Atlanta since 2000.

Cousins is also seeking rezoning of 219 acres that it owns west of Georgia 400 between Mansell Road and Haynes Bridge Road. The plan includes 1.8 million square feet of office, 311,000 square feet of retail, 2,000 apartments and townhomes and a 2,000-seat performing arts center. The approval process may take up to a year, with completion estimated in 3 to 5 years.

Mills Corporation may complete the purchase of partnership interests in Town Center at Cobb and Gwinnett Place Mall this year. Certain contract contingencies must be met in its conditional contract with Cadillac Fairview for the deal to go through. During the first quarter 2003, there have been several power center sales in metro Atlanta. Inland Retail Real Estate purchased MarketPlace at Mill Creek and Stonecrest MarketPlace from North American Properties for $86 million, and Steven D. Bell purchased Henry Towne Center in McDonough from Sembler Properties. Cap rates are at least 50 basis points lower than last year for this product type. Mall sales included South Dekalb Mall, which Thor Equities purchased from O’Leary Partners for $26.7 million. Thor plans to spend $15 million to renovate the mall, located in one of the wealthiest African-American communities in the United States.

Home Depot is building a store at Huntcrest, a 416-acre mixed-use development in Gwinnett County, just west of Interstate 85 at Old Peachtree Road near Suwanee. The 114,680-square-foot store is scheduled to open in late August. IRT is also developing a Publix-anchored shopping center at Huntcrest.

Ann Taylor Loft is opening a location at Vinings Jubilee, which is beginning construction of its final phase. Paces Properties is expected to complete construction in June. BrandsMart, a discount electronics, appliance and housewares retailer, and H.H. Gregg, a Midwest appliance and electronics retailer, have entered the Atlanta market. BrandsMart plans up to six stores, while H.H. Gregg has opened two stores in Morrow and Kennesaw and plans to open up to 11 additional stores. Big Lots is remodeling its 48 Georgia stores and has added international speciality food items to its stores nationwide.

- Lynn Leonard, NewBridge Retail Advisors

Multifamily

In response to sluggish economic conditions, Atlanta’s apartment market continues to struggle in 2003. With employment figures dropping for the first time in more than a decade and historically low interest rates fostering home buying, fewer potential renters have emerged. According to Mark Vinter, economist with Wachovia Bank, up to 45,000 new jobs are forecast for the region by the end of the year. However, the market will likely continue to decline this year due to rising supply, weakening demand and falling occupancy levels.

During 2002, a significant 14,000 new apartment units were delivered in Atlanta, while construction commenced on an additional 9,700 units. These numbers represented a 20 percent decrease in new apartment construction when compared to 2001, when completions totaled nearly 15,200 units and approximately 12,400 units were started. Although construction activity has tapered, overall vacancy has increased, climbing from 8.9 percent in 2001 to 10.6 percent in 2002. The South/West Fulton and Decatur submarkets are experiencing the highest vacancy rates across the metropolitan statistical area, at 14.8 percent and 11.6 percent respectively. Quoted rental rates have remained relatively flat, averaging approximately $815 per month as landlords choose to offer greater concessions rather than lower rents.

With higher density projects gaining favor, particularly within in-town submarkets, two high-rise projects are underway in the Buckhead submarket. The Paramount at Buckhead, developed by Hanover of Houston, will contain 300 units in 39 stories with first units available in November. Regent Partners of Atlanta is developing the Regent at Tower Place at Piedmont and Peachtree roads. The project will include 286 units and has an anticipated delivery date of April 2004. Wood Partners and AEW Capital Management are preparing to open Alta West, a 265-unit development located in Midtown at Howell Mill Road and 10th Street. The project consists of four six-story buildings with 10,000 square feet of ground-floor retail space.

- Mike Crawford, Bullock Mannelly Partners


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