'A Little Alarming': Atlanta's Industrial Market Cooling Rapidly
The deluge of new warehouses throughout Metro Atlanta is finally pushing vacancy rates skyward.
Developers delivered 12.7M SF in the third quarter, an all-time record for a single quarter, according to new CBRE data. A staggering 98% of that space was vacant upon opening, showing that the developers collectively may have been too optimistic about how much warehouse space companies would want. The metro area’s vacancy rate rose from 4.5% to 5.8%, the highest level since 2020.
With nearly 30M SF still under construction, at least one major industrial development executive said he sees trouble brewing for the market as corporate appetite for warehouse space flags in the region and programs to shore up supply chains have largely ended.
“It’s a little bit alarming. Clearly, leasing has slowed down significantly,” Seefried Industrial Chairman Ferdinand Seefried said. “The weakness will certainly last for another six to 12 months.”
Tenants absorbed 2.6M SF in the third quarter, a positive figure but a 45% drop in absorption from the third quarter last year. Total absorption this year through the third quarter is 9.3M SF, according to CBRE, down from 17M SF in the same period last year.
Total leasing activity decelerated as well to 9.1M SF, a 40% drop. The biggest dearth of activity was with the big-box distribution centers, those 500K SF and larger, which saw a 71% decline in leasing. Landlords with buildings between 100K SF and 500K SF saw leasing activity fall 44%.
“Due to the uncertain economic climate, as well as supply chain issues leveling out, companies are not absorbing big-box space as frequently as they were during the pandemic,” CBRE Associate Research Director Scott Amoson said in the report.
The pandemic's devastating impact on global supply chains kicked off a chain reaction that spurred many retailers, especially Amazon, to gobble up U.S. warehouse space at record levels.
Atlanta was one of the main beneficiaries of that paradigm shift. Prior to the pandemic, average annual absorption in Metro Atlanta ranged between 15M SF and 20M SF, Amoson previously told Bisnow. In 2021 and 2022, the market absorbed 35M SF and 40M SF of industrial space, respectively, as companies scrambled to store extra materials and goods in the U.S.
But Seefried said those efforts are largely complete, leaving much of the new big-box inventory empty.
“Many companies have decided to increase their inventory in America, and that was one of the reasons there was so much leasing,” he said. “[But] there’s plenty of container capacity right now, and the ports are not congested.”
Seefried said he expects leasing demand to start coming back in 2025.
The largest new leases inked during the third quarter were electrical conduit manufacturer Atkore’s 523K SF deal at Busch Logistics Park in Bartow County, Dollar General’s 485K SF deal in Building 500 of Greenwood Industrial off Interstate 75 south of Atlanta, and The Atlanta Journal-Constitution’s 454K SF lease at 6455 Best Friend Road in Norcross.
The biggest lease of the quarter was a 745K SF extension signed by Walgreens at the Jackson 85 Distribution Center in Pendergrass. Progress Lighting also renewed a 623K SF lease in a different building in the Jackson 85 park.
Most tenants are seeking buildings and spaces smaller than 100K SF, according to CBRE, with leasing activity up in those spaces by 27% compared to the third quarter of 2022. Lee & Associates Executive Vice President Rick Tumlin said during Bisnow’s industrial event in June that the dynamic was a “good bellwether for the economy,” as tenants continued to take smaller increments of space to grow with their business demand.
It’s a trend that Amoson said in the report will likely continue for some time.
“The market’s appetite for smaller buildings has remained strong throughout the year and shows no signs of weakening in the near term,” he said.
