Atlanta Industrial Sees Resurgence Of Big Deals, But ‘We Still Have A Ways To Go’
Big-box industrial tenants are peeking their heads out of the sand in Metro Atlanta for the first time since 2022, as one undisclosed company leased more than 1M SF and Target moved into a 1.4M SF distribution facility in Henry County.
The two deals made up the bulk of the third quarter’s overall absorption rate, which came in at 3.3M SF, according to CBRE’s Q3 Metro Atlanta industrial report.
Small tenants have dominated leasing activity since 2022. But corporate appetite for large-scale warehouses, which can surpass the size of major regional malls, appeared to pick up again as companies absorbed more than 9M SF so far this year, CBRE reported.
Industrial pros aren’t breaking out the bubbly yet.
“We haven’t had a million-square-footer done in a year and a half. For a major market, that’s not good,” CRG Real Estate Executive Vice President Mike Demperio told Bisnow. “Doing one deal does not signal the market is back. There’s still a lot of empty buildings.”
Demperio confirmed that the unnamed tenant mentioned in CBRE’s report leased 1M SF at The Cubes at River Park, a master-planned distribution campus near Athens, but he declined to identify the tenant.
Companies inked 14.6M SF of leases in the third quarter, the most since 2022, CBRE said. And the size of the deals is growing. While the number of deals inked this past quarter fell by 19% from the second quarter, leases of more than 100K SF grew by 87%.
“That million-square-footer is hopefully a sign of those [big-box] deals getting signed,” CBRE Associate Research Director Scott Amoson said. “Those bigger tenants are getting more comfortable signing deals.”
Large warehouse leases had been a rarity in Metro Atlanta for nearly two years as companies pulled back from the rampant growth of their logistical networks during the pandemic. The direct vacancy rate hit an all-time low of 3.4% at the end of 2021, and developers moved into overdrive. At its peak last year, 39M SF of new warehouse space — most of which was being built without a tenant in tow — was underway in the metro area. That glut, coupled with companies only signing leases for smaller spaces, pushed the direct vacancy rate up to 8.2% in the third quarter, according to CBRE.
As heightened interest rates and a deluge of maturing commercial real estate loans weighed on the financial system, the development spigot largely shut down in Metro Atlanta. As of the third quarter, 11.8M SF was under construction, a nine-year low.
“All of that [vacancy increase] is basically due to all of this product delivering. Even with strong leasing, we had a record amount of construction,” Amoson said. “I can’t remember the last time the Atlanta industrial market had under 12M SF under construction. And that’s a good thing.”
Stan Conway, a former executive vice president with Majestic Realty in Atlanta, said the two million-square-foot deals offer a glimmer of hope that the market is picking up, especially with more spec space under construction. But Conway said a lot of that activity was likely pent-up demand, as companies held off on major capital outlays while interest rates were at their recent peak.
“This dip in rates and a little more certainty to the economic trajectory is easing things, [but] I don’t think it’s foreshadowing a big rally,” he said.
But Amoson said that if the leasing momentum sustains through the rest of the year and into next year, the vacancy rate could rapidly reverse its trajectory. And since developers have largely pulled back on new projects, it could create a space crunch as early as the middle of next year, tilting the seesaw back in landlords’ favor.
“Developers still aren’t making any money to speak of because of the profit spread. I’m obviously optimistic. In my business, you have to be. But we still have a ways to go,” Demperio said. “We need to do more deals to become a profit business instead of a tread-water business, which we are now.”
