Pull back in demand for the quarter, but overall fundamentals remain healthy

EXECUTIVE SUMMARY

Q3 In Review
The Atlanta retail market remains resilient, with over 1 million sq. ft. of leasing activity in the third quarter of 2024, bringing the year-to-date total to 3.4 million sq. ft. However, new deliveries and construction activity have slowed significantly, leading to a pause in net absorption, which recorded negative absorption of 227,995 sq. ft. this quarter—the first such decline in four years. The tight market has driven a trend of renewals, as tenants face limited options for new space. Despite these challenges, Atlanta’s vacancy rate remains remarkably low at 3.9%, marking the eighth consecutive quarter below 4%. Meanwhile, new deliveries hit their lowest point in a decade, with only 178,182 sq. ft. completed, well below the historical average. Rental rates continue to climb, reaching an all-time high of $19.65 per square foot, driven by strong demand and limited supply. Overall, while leasing activity has slowed, Atlanta’s retail market remains healthy with strong fundamentals and low vacancies expected to persist.

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 Remains Healthy at over 1 Million sq. ft. for the Quarter
With the new deliveries and the construction pipeline both decreasing over recent quarters, leasing activity has slowed largely due to a limited amount of desirable space to lease-up. For the year so far, leasing activity has totaled 3.4 million sq. ft. Renewals in place have been a growing trend, as there are limited options of new space available to move into.

Demand Pauses, Along with New Deliveries
With a large pullback in new deliveries (less than 200,000 sq. ft. completed), net absorption also saw a pause for the quarter. For the first time in four years, the overall market recorded negative absorption for the quarter at 227,995 sq. ft. Over recent years, net absorption has been strongly tied to new construction, with little movement on older, big blocks of retail space. Notable new leases for 2024 include a new 76,139-sq.-ft. Walmart Neighborhood market at Historic West Village; a 60,000-sq.-ft. Yes Foods at Forest Square; Publix moving into 54,964 sq. ft. at 103 Mirror Lake Connector; and The Anchor School leasing 50,000 sq. ft. at Wesley Chapel Crossing.

Vacancy Rate Extremely Low at 3.9%
The overall vacancy rate in Atlanta’s retail market is at 3.9%. This is up 10 basis points over the past quarter, but still well below the historic norm of 5.3%. Like most major retail markets across the country, vacancy is near a record low. Atlanta has maintained a sub-4% vacancy rate over eight consecutive quarters. All indicators pointed to vacancy rates remaining low for the foreseeable future.

Deliveries at Lowest Point in 10 Years, Pipeline also at Historic Low
New deliveries have been trending downward for four consecutive quarters, with less than 200,000 sg. ft. delivered in the third quarter of 2024 (178,182 sq. ft.). To put this low number in perspective, this is the lowest amount of new construction delivered in a single quarter during the past decade. Over the past 10 years, the average quarterly deliveries have been over 500,000 sq. ft. (532,387 sq. ft.) Like the construction deliveries, the under-construction pipeline has been trending downward.

Investment Sales Trends
Over the past year, 744 retail properties were sold in the Atlanta retail market with an average transaction price of $201 per sq. ft. and an average cap rate of 7.0%. There has been a notable uptick in transaction volume of portfolio sales for Neighborhood/Community Centers and Power Centers across the Atlanta market. Houston-based 5Rivers CRE and Big V Property out of Charlotte have been some of the more active investors so far this year. Also, AutoNation completed a sale-leaseback of its auto dealership at 869 SE Cobb Pkwy in Marietta for $205 per sq. ft.

Rental Rates Up Slightly, Reaching All-time Highs Once Again
The average monthly rental rate (NNN) for Atlanta’s retail market is $19.65 per sq. ft. This is up slightly from last quarter (0.1%) and up 2.5% over the past year. Over recent years, rates have been trending higher and stand at all-time highs for the market overall.

Steve Triolet
SVP of Research and Market Forecasting
tel 214 223 4008
[email protected]