Market fundamentals remain healthy, with rates rising to record highs once again
EXECUTIVE SUMMARY
Q3 In Review
The Atlanta industrial market has experienced moderate growth in leasing activity, positive albeit slowing net absorption, and steady vacancy rates in 2024. Leasing velocity increased by 2% year-over-year, with 26 million sq. ft. leased to date. Net absorption for the quarter was largely flat at 44,793 sq. ft., though demand remains concentrated in traditional Warehouse/Distribution space. Vacancy rates held steady at 8.2%, reflecting more neutral market conditions. The development pipeline has tapered from mid-2022 peaks, with 20 million sq. ft. currently under construction. Investment sales have remained steady, with notable transactions in key industrial properties. Record-high rental rates for Warehouse/Distribution properties set a new market standard, reaching an average of $9.48 per sq. ft.
Atlanta Economic Update
The unemployment rate for the Atlanta metro area increased slightly to 4.0% in August 2024, up from 3.9% in July. This is still below the national average and reflects the region’s continued recovery from pandemic-related job losses. Atlanta’s labor force also reached an all-time high in July, with over 3.3 million people. The total number of jobs in the area was approximately 3.09 million, representing an annual growth of 51,200 jobs.
Job growth in Atlanta remains robust, particularly in sectors such as healthcare, finance, and hospitality, which saw notable gains over the past year. Long-term, the city continues to benefit from lower living and business costs compared to major East and West Coast cities, maintaining its competitive edge in attracting businesses and residents.
MARKET OVERVIEW
Leasing Activity Up Slightly Year-Over-Year
Quarterly leasing velocity—comprised of new leases and renewals—stood at 8.8 million sq. ft.—up 2% from 8.6 million sq. ft. in Q3 2023. Year-to-date, leasing activity is at 26 million sq. ft., compared to the prior year-to-date figure of 25.5 million sq. ft. Notable recent leasing activity includes Hanwha Q Cells leasing 834,971 sq. ft. at Busch Commerce Center; Fulfillment Strategies International subleasing 364,200 sq. ft. at West Fulton Commerce Park; and Conmed leasing 330,000 sq. ft. at 1250 Terminus Dr in Lithia Springs.
Positive Net Absorption Despite Slowing Demand
Net absorption—move-ins minus move-outs—is at 5.4 million sq. ft. for the first half of 2024, this is significantly higher than the first half of 2023, when 2.3 million sq. ft. was absorbed. Demand for space in 2024 so far has been completely concentrated in more traditional Warehouse/Distribution space, both Flex and Manufacturing properties recorded negative absorption of 248,525 sq. ft. and 207,443 sq. ft., respectively. Notable move-ins for the first half of 2024 include Devgiri subleasing 705,833 sq. ft. at Clayton 75 Logistics Center, Samsung SDS taking 273,576 sq. ft. at Cassville 75 Distribution Center, and Pratt Industries taking 240,000 sq. ft. at the Twin Creeks Business Center.
Vacancy Rate Increases to 8.2%
The overall vacancy rate in Atlanta’s industrial market is at 8.2%. Like most major industrial markets across the country, a robust pipeline of new construction over the past two years has moved the overall market from a landlord market to more neutral conditions (8% to 10% vacancy). Quarter over quarter, the vacancy rate increased 80 basis points from 7.4%. Year over year, the vacancy rate increased 320 basis points from 5.0%. Flex, Manufacturing, and Warehouse/Distribution space had vacancy rates of 5.4%, 3.6%, and 8.9%, respectively. As new deliveries continue to outpace demand, the overall vacancy rate is forecasted to increase in the later half of 2024.
Under Construction Pipeline Tapers Off
New deliveries for 2024 so far have outpaced net absorption with a little under 21 million sq. ft. completed versus the 5.4 million sq. ft. absorbed for the same time period. Still, the under construction pipeline has been trending down from all-time highs of over 50 million sq. ft. reached in mid-2022. The current under construction pipeline stands at 20 million sq. ft., this is about 5 million sq. ft. below the 10-year historic norm for the Atlanta industrial market.
Investment Sales Trends
Over the past year, 662 industrial properties were sold in the Atlanta industrial market with an average transaction price of $113 and an average cap rate of 7.0%. Notable sales transactions in 2024 so far include ETI Solid State Lighting purchasing the 111,103-sq.-ft. industrial building at 4873 Thurman Tanner Pkwy for its new North American headquarters from Hines, for $15.3 million ($137 per sq. ft.). Costco purchased 5390 Hunter Rd, a 907,000-sq.-ft. distribution property it occupies; and GLP Capital Partners acquired the 846,496-sq.-ft. industrial building within the King Mill Distribution Park from American Realty Advisors for $77.5 million ($92 per sq. ft.). Also, the Welcome Group acquired the 691,667-sq.-ft. International Commerce Center for $66.3 million ($96 per sq. ft.) The property was developed in 2023 and 100% leased to BroadRange Logistics, though the tenant is currently marketing a sublease of 200,000 sq. ft.
Record-High Warehouse/Distribution Rental Rates
The average monthly rental rate (NNN) for Atlanta’s industrial market is $9.48 per sq. ft. This is a slight increase over the past year (1.4%) and sets a new record for the market overall. Most of the rental rate increases have been for Warehouse/Distribution properties, Flex and Manufacturing rates have been much flatter in comparison over recent quarters.
Steve Triolet
SVP of Research and Market Forecasting
tel 214 223 4008
[email protected]
