Atlanta Market Overview with NAI Global’s Mitchell Brannen (Part 3)

Few cities in America have enjoyed the population growth that Atlanta has post-World War II. In 1950, according to Bloomberg, Atlanta had 670,000 residents and today, its population has grown to 6 million. Atlanta went from the 23rd largest metro area in the U.S. to its current status at #9. Good climate, excellent quality of life offset by reasonable cost of living expenses, infrastructure investing (Hartfield-Jackson Atlanta International Airport is the busiest passenger airport in the U.S.) and free college with the Hope Scholarship at all public universities are just a handful of reasons that Atlanta has been a top-three city for in-migration in the U.S. for a decade or longer.

Ask Mitchell Brannen, SIOR, Chairman, CEO and Principal with NAI Brannen Goddard (the NAI Global firm in Atlanta), “What does Atlanta do well?” And he recites a short-list that would be the envy of most states:

“Atlanta is the capital of the Southeast. We’re a pro-business, right-to-work state. It costs about 10 percent less to operate a business here, 25 percent less to own a home (compared with other major U.S. markets), utilities cost less and the state of Georgia competes for new business as hard as any other state,” Brannen says.

For example, 10 years ago the film industry did not have presence in Atlanta. Georgia provided Hollywood with enough incentives to make movie production a $9.5 billion annual industry in Georgia today. The motion picture business is still growing here and the next step is to add more post-production work in Atlanta.

The city recently opened a new $1.6 billion football and soccer stadium (Mercedes-Benz Stadium) and has its new $700 million baseball stadium (SunTrust Park) that ultimately will be a $1.5+ billion mixed-use sports and entertainment complex. Most cities are not able to complete one of those deals in current political and economic environments, much less two of them in the same decade.

These are some of the reasons why Atlanta has attracted 17 major corporations to open new regional or national headquarter facilities in the last four years, including the aforementioned Mercedes-Benz, Honeywell International, Porsche North America, General Electric Co. and NCR Corporation, among others. Only New York and Houston have more headquarters facilities than Atlanta now.

Not surprisingly, Atlanta’s commercial real estate has been and continues to be one of the strongest markets in the country.

Industrial Overview: The region’s industrial vacancy rate ended the second quarter at 6.5 percent, according to Costar. During the recent eight quarters (from 3Q2015 to 2Q2017), net absorption of industrial space has been a staggering 31.8 million square feet.

Yet supply is chasing demand. Through August this year, over 13.6 million square feet of industrial inventory has been delivered to the Atlanta market, and another 9.5 million square feet is expected to come to market before the close of 2017.

Owens Corning and Lindt are the most current corporate tenants to join the “1+ million-square-foot club,” joining FedEx, UPS, Home Depot, Dollar General and Kubota Tractor that have recently or are about to establish facilities with at least a million square feet of industrial product. Owens Corning inked a 1,044,288-square-foot lease at 8095 McLarin Road in South Atlanta while Lindt committed to a 1,004,400-square-foot lease at Lambert Farms Logistics Park, also in South Atlanta. Dollar General will occupy a 1.2 million-square-foot facility that it pre-leased later this year when construction is completed.

Commercial and Office Overview: While the overall office vacancy rate has come down substantially since it was around 20 percent at the peak of the recession, vacancy seems to be stuck around 12 percent, says Brannen.

The office vacancy rate bumped up to 12.1 percent at the end of the second quarter and has floated around that general vicinity since the fourth quarter of 2015. Class A vacancy was 13.5 percent at the close of 2Q2017.

A little more than 1.5 million square feet of office space has been delivered this year – substantially more than the previous seven or eight quarters but mostly in smaller buildings or owner-user projects.

“Rents don’t justify speculative office building on a large scale and for the most part, can’t be financed anyway,” said Brannen.

The lone exception to spec building in 2017 was a project delivered in April – Three Alliance, comprised of 506,000 square feet and located in Buckhead. In a pre-leased arrangement, State Farm’s Park Center 1 in the Central Perimeter was completed in July (602,000 square feet) and construction of State Farm’s second phase (Park Center 2) is underway. The insurance company’s second building is scheduled for completion in April of 2020.

However, speculative apartment construction can be justified and institutional money is financing well over 1,000 apartment units in multiple projects in Buckhead. The iconic office market in Atlanta is about “to become the most densely developed submarket in Atlanta,” says NAI’s Atlanta chief executive.

Like other U.S. markets, upscale food halls are opening in Atlanta. Ponce City Market is the largest one and breathes new life into the historic Sears, Roebuck & Co. building at 675 Ponce de Leon Avenue in Northeast Atlanta. The adaptive reuse project reopened in 2014 and in addition to its Central Food Hall, includes retail shops on the lower levels, workspace for office users and apartments on the upper floors. It offers easy access to the popular and pedestrian Beltline that surrounds the city and is the target for most redevelopment in the Atlanta metro area.

Central Food Hall, Ponce City Market

Atlanta’s success in its core submarkets and CBD is fueling suburban development, such as 8000 Avalon, a new 228,000-square-foot midrise Class A office building with a conferencing facility, hotel and onsite, full-service restaurant. It is 26 miles north of downtown Atlanta in Alpharetta on Old Milton Parkway.

Avalon is an 86-acre mixed-use development. The retail portion opened first, then residential and now the office building. A hotel and conference center are also planned for Avalon, which has quickly become a popular area attraction with a huge outdoor lawn for events in the warm months and an ice-skating rink in the winter. There is entertainment, tons of dining options and shopping all in one location.

“Properties like Avalon offer occupiers the ability to attract companies and workers with a higher quality of life by not participating in Atlanta’s traffic. Plus there are good schools and other amenities, but it is not cheaper,” says Brannen.

Indeed, asking rents are $37 a foot at 8000 Avalon and on par or higher than Class A space in Buckhead. Office tenants are beginning to move into 8000 Avalon. Microsoft, Regus and Crown Castle plan to take occupancy in the building in November and December, while SAP plans to move in during the third quarter of 2018.

8000 Avalon, located at 2660 Old Milton Parkway in Alpharetta

NAI Brannen Goddard is one of Atlanta’s largest commercial real estate firms and annually closes approximately 20 million square feet of industrial, mixed-use commercial and office lease and sales transactions.