SOUTHEAST SNAPSHOT, OCTOBER 2006

Atlanta Industrial Market

Demand for Atlanta industrial space has grown during the past 2 years and this year has been no exception with tenants taking down more than 3.3 million square feet of space by mid-year. The demand has prompted speculative construction, which is currently more than 11 million square feet. And as those projects are starting to deliver, the vacancy rate has inched up to 14.4 percent. 

Activity was strong across almost all submarkets, with two experiencing notable activity. The most active submarket in Atlanta is the Northeast, which has seen a glut of large leases signed during the past year. Significant tenants include: The Home Depot , Spectrum Brands Inc., Reckitt Benckiser, Global Equipment Co. and Anderson Merchandising. Demand for space in the Northeast is being matched by 3.2 million square feet currently under construction. The other submarket with significant activity is Airport/South Atlanta. This submarket currently has almost 6.5 million square feet under construction and nearly 1.5 million square feet has been occupied this year. Just recently, Kimberly-Clark leased 1.3 million square feet from Oakmont Industrial Group and IDI announced plans to develop a 950,000-square-foot center to be named The Southside Industrial Park Business Center.

Investment in Atlanta’s industrial market will be robust during the remainder of this year. During second quarter, investors spent in excess of $638 million on Atlanta industrial properties. The new bulk buildings with long-term credit leases are producing low cap rates and high prices per square foot. In addition, older multi-tenant portfolios are attractive; however, they obtain lower prices due to typically high vacancy and obsolete functionality. One of the most notable deals was the portfolio sale of a 14-building, 2.8 million-square-foot portfolio by MK Management/Kuniansky Holdings to Crow Holdings for $109.7 million. Another significant portfolio deal was the sale of Northwoods Business Park and Franklin Forest Business Park, totaling 900,791 square feet. First Industrial sold the office properties for $71.7 million. 

Throughout last year, developers combed Atlanta and its surrounding areas in search of land for industrial development. This trend will continue as Atlanta is a linchpin in the country’s logistics network, largely due to its inter-modal capabilities, low cost basis and reputation as the southeastern distribution hub. Further, import activity in Savannah is expected to increase by 20 percent before 2010. Also, the logistics trend of maximizing distribution efficiency by consolidating into larger and more modern facilities will continue. 

Although demand in Atlanta’s industrial market is strong, it is being matched by equally robust construction. This equilibrium is causing vacancy to stabilize around 14 percent and will keep leasing opportunities readily available for tenants searching the market. As rental rates stabilize somewhat, concessions will linger throughout the year. For lease rates to increase and for concessions to subside, vacancy must slide closer to the 10 percent mark.

— Kevin Fairris is the director of Grubb & Ellis’ national client services group in Atlanta.

©2006 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.