George Edwards Managing Director Bullock Mannelly Partners

With softer economic conditions remaining in 2003, industrial developers in Atlanta have prudently cut back on new construction levels. Under-utilized space has been consolidated as companies continue to empty surplus inventories. “Looking ahead through 2004, smaller shallow-bay buildings will become more popular, as will build-to-suits while developers attempt to minimize risk in the near term,” says George Edwards, managing director with Bullock Mannelly Partners in Atlanta.

Construction activity within Atlanta’s industrial market has declined significantly during the last 3 years. During the last decade, warehouse properties have made up the majority of new projects coming on line as tenant preferences have shifted to larger buildings in the Atlanta area. This has been a result of Atlanta’s position as the hub, or major collection and distribution point, for many companies operating in the southeastern United States.

Through mid-year 2003, 1.2 million square feet in new warehouse properties was delivered, accounting for more than two-thirds of Atlanta’s total delivery volume. Further market contraction has curbed current warehouse construction to a mere 375,000 square feet. “With leasing demand continuing to decline, the Interstate 20 West/Fulton and Northeast submarkets are experiencing the most new construction activity with 794,500 and 524,000 square feet underway, respectively,” notes Edwards.

Recent leases include Oatey SCS, which signed up for approximately 97,000 square feet at Westpark, located at 4075 Boulder Ridge Dr. in southwest Atlanta. Oatley SCS is a plumbing wholesale distributor which markets a variety of industry name brands. Also at Westpark, Fast Forms is expanding and has picked up an additional 93,000 square feet at the center. Larger recent renewals include 148,750 square feet by Stewart & Stevenson Tug at 815 Allgood Rd. in Marietta (Northwest submarket) and 144,560 square feet by PBD Inc. at Sweetwater Park in the Northeast submarket.

Atlanta’s overall vacancy rate is edging up at a rate of about 30 basis points per quarter. The average vacancy figure reached 14.6 percent by July, slightly higher than the national average of 13.5 percent. Warehouse properties have the highest vacancy at 14.8 percent, followed by flex properties at 14.3 percent and shallow-bay properties at 13.8 percent.

The south Atlanta submarket is experiencing the highest vacancy rate at 16.8 percent. However, the central Atlanta submarket has turned in the poorest performance during the past 6 months where vacancy increased from 13.5 percent in fourth quarter 2002 to 15.4 percent in second quarter 2003. During the same time frame, the Snapfinger/I-20 East submarket has held up rather well, maintaining Atlanta’s lowest vacancy rate with a drop from 8.1 to 7.2 percent.

A submarket to keep an eye on in the near future is the I-20 West/Fulton, which has been softening in 2003. Ranked as Atlanta’s third largest submarket with approximately 71 million square feet, the I-20 West/Fulton submarket vacancy rate increased 1.6 percent to 16.1 percent during the last 6 months. Additionally, it has recorded one of the weakest absorption levels this year with negative 363,000 square feet. Moreover, about half of Atlanta’s total construction pipeline was slated for delivery within the submarket in the third quarter, yet only a fraction of the space had been pre-leased.

Atlanta’s industrial market continues to be negatively impacted by the sluggish economy. While some economic signs point to greater stability during the second half of the year, the lack of tenant demand will continue to stall a potential recovery in the industrial sector over the balance of 2003. As supply and demand fundamentals remain out of line, the overall vacancy rate is anticipated to remain elevated, applying downward pressure on rents and resulting in additional concessions. Despite this, the belief that warehouse markets will lead the upcoming real estate recovery has kept many investors looking for opportunities in this property sector.

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