SOUTHEAST SNAPSHOT, OCTOBER 2004

Atlanta Industrial Market

Michael Demperio Principal – Industrial Properties Newmark & Company Real Estate

Due to the limited new construction during the past 4 years in the Atlanta market, there has been no significant change to the physical attributes of both the bulk industrial and office warehouse structures, according to Michael Demperio, principal – industrial properties with Newmark & Company Real Estate’s Atlanta office.

Geographically, any future development will be occurring farther from the center of Atlanta, as land availability is scarce. “Thus, land values have increased substantially both near the perimeter highway, Interstate 285 and in outlying areas,” Demperio says. “Additionally, much of the land that is geographically acceptable has been passed over during the last expansion period and has engineering challenges.”

There are few new industrial developments that have been announced in the past 12 months in Atlanta due to the recent real estate recession. However, the large industrial parks that were developed during the past 3 years still have land availability, and these parks will attract a significant amount of build-to-suit and speculative buildings within the next 3 years.

New tracts of bulk industrial land located within Atlanta are priced at $70,000 to $125,000 per acre, which may make industrial development cost-prohibitive.

“Therefore, Braselton, in northeast Atlanta near the Mall of Georgia on Interstate 85, may experience future development,” says Demperio.

Bulk warehouse rental rates are averaging between $2.35 and $2.55 per square foot with 3 percent office, and office/warehouse rates with a 20 percent finish are averaging $4.50 to $5 per square foot.

The south side of Atlanta is still an attractive alternative with numerous tracts of affordable developable land. “Nevertheless, at this time, there are limited new proposed projects due to the competitive leasing climate,” Demperio says. “New construction will not be feasible until the vacancy rate drops and the rental rate rises substantially.”

In the near future, the corridors of Interstate 20 west, Interstate 75 south and Interstate 85 south should continue to be areas of interest due to the excellent labor source, a large availability of land and excellent accessibility. At the current time, however, the majority of the industrial real estate development is taking place south of Interstate 20 and Hartsfield-Jackson International Airport. “The main reason for the development in this area is the lack of available land in northwest and northeast Atlanta, coupled with lower land prices,” he says. “Labor is cheaper and the area provides better accessibility to the interstates and to the airport/airfreight.”

Catellus recently has made a major entry into the Atlanta market by developing a 900,000-square-foot building for APL Logistics. Cousins Properties also has announced its intention to develop industrial properties, and it currently has at least one property under contract and others in review. “These developers are paying more for land to get entry into the Atlanta industrial market and only time will tell if they can hit their proforma numbers,” Demperio says.

“Most of the bulk developments are attracting large national and international companies that have very simple distribution needs, such as high clear ceilings, trailer storage and access to the interstate,” he says.

Atlanta’s vacancy has recently decreased to 14.4 percent, which includes all industrial space. Atlanta had a positive net absorption in the first quarter of 2004, and the second quarter resulted in almost 3 million square feet. Unfortunately, the vacancy rate is still too high for rent appreciation. The south side of town has numerous large bulk industrial blocks available: Catellus has 450,000 square feet; Opus has 500,000 square feet; Duke has 500,000 square feet; Carter has 500,000 square feet; and Panattoni has 450,000 square feet.

“Atlanta is still a tenants’ market,” says Demperio. “And if the next 2 years provide positive net absorption as seen historically — 10 million to 12 million square feet per year — we should see rent growth and additional industrial developments.”

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