Atlanta's Industrial Market On Nation-Leading Tear

Atlanta's industrial real estate market is one of the healthiest in the country, despite slowing e-commerce sales, inflation and recession concerns.

Industrial tenants absorbed 11.7M SF of industrial space during the second quarter of this year, the most of any U.S. city, according to recent Cushman & Wakefield research. Companies filled nearly 50% more available industrial space in Atlanta between April and June than second-place Chicago, which recorded more than 8M SF of positive net absorption. 

The Metro Atlanta industrial vacancy rate dipped below 3% for the first time in the industry's history, according to Cushman & Wakefield, leaving only seven buildings with at least 300K SF available as of the second quarter.

“Since we wrote that report, one of them is already leased,” said Riley McMullan, the research manager for Cushman & Wakefield in Atlanta. “That demand is certainly still there.”

She added that two of those other large blocks are also negotiating with tenants.

The shrinking available supply has continued to push rents up, to an average of $6.77 per SF, a nearly 28% year-over-year jump.

Atlanta industrial fundamentals remain solid despite growing concern across the nation that developers may be building too much warehouse space. Many economists are predicting that the Federal Reserve's plans to hike interest rates again this month, as much as a full point, by some forecasts, could tip the economy into a recession. 

Concerns over an economic pullback have yet to impact Metro Atlanta's warehouse and manufacturing space, where tenants leased 12.1M SF in the second quarter, an 18% increase from Q1, and the sixth consecutive quarter of leasing activity exceeding 10M SF.

“We're not seeing any slowdown in the markets we're in,” said David Welch, the CEO of the industrial developer Robinson Weeks Partners, which recently broke ground on a 170K SF speculative warehouse at its Gillem Logistics Center, a master-planned 1,168-acre industrial complex on a former U.S. Army base just outside of Atlanta.

The U.S. Postal Service signed the biggest least of the quarter, for more than 1M SF at Palmetto Logistics Park in Fairburn, more than 20 miles south of Atlanta, according to Lee & Associates. Other big leases included Dollar General subsidiary DG Distribution's 1M SF deal at Coweta Logistics Center, e-commerce fulfillment provider Spreetail's 910K SF lease at 200 Metcalf Road inside Gillem Logistics Center and Conn's Appliances' 706K SF deal at 2464 Mount Zion Road in Morrow, according to Avison Young.

Industrial real estate has for years been one of the strongest asset classes in real estate, especially once the pandemic fueled a boom in online sales. But e-commerce sales growth, which hit 50% between 2019 and 2020, slowed to 6.7% in the first quarter compared to the same period in 2021, according to Digital Commerce 360, citing U.S.Department of Commerce data.

Amazon's reported plans to decelerate the amount of industrial it leases, which accounted for 15% of all leasing activity in the U.S. last year, and sublease up to 30M SF also had a chilling effect on the industry.

With nearly 700M SF under construction across the country, some analysts are raising alarms. Commercial real estate analytics firm Green Street found that developers in the U.S. will likely add 90M SF of excess supply a year, decreasing occupancy a full point to 94% over the next three years.

But in Atlanta, even with more than 50M SF underway, the outlook remains rosy.

“The consumer shift to e-commerce, strong regional demographic trends and the rapidly growing Port of Savannah are durable growth drivers that will underpin industrial demand for the foreseeable future in Atlanta,” Sara Barnes, Avison Young Southeast region lead for innovation and insight, wrote in a recent report.

So far this year, 80% of new warehouses delivered to the market are already filled with tenants, according to Cushman & Wakefield. McMullan said even if all of that square footage were to deliver right away completely empty, vacancy rates in Atlanta would still remain at historic lows.

Analysts also say it's taking longer for developers to finish the construction of new warehouses given supply chain and construction material constraints. 

“Overbuilding is not really a concern for us,” McMullan said. "Demand really shows no sign of abating."

Rising interest rates are nonetheless likely to cause some of the deals planned in Metro Atlanta to be delayed or canceled altogether, Welch said.

“With interest rates notching up and capital kind of repricing … we're seeing a lot of stuff that has been planned out there, some of that will be pausing and not actually starting,” he said. “I think the market is self-policing, which, I think, is a healthy sign.”