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Q1 Industrial Results Mixed as Short-Term Outlook Wanes

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Similar to the beginning of 2019, Atlanta's industrial market started 2020 off sluggishly, absorbing its lowest quarterly amount of space since 2012.

Key Takeaways

  • Atlanta's industrial market extended occupancy gains into the first quarter of 2020; albeit at the lowest quarterly amount since 2012.
  • Q1's positive absorption came mostly from smaller industrial tenants. There were no occupancies above 350,000 square feet this quarter.
  • Vacancy in the market increased by 60 basis points (0.6%) over the three-month period as industrial deliveries greatly outnumbered absorption levels. This is the highest quarterly increase Atlanta's industrial market has seen in eleven years.
  • In spite of modest gains, Q1 industrial leasing was strong with three 1-million-square-foot-plus transactions transpiring, two of which were from Amazon.
  • Rents continue to show upwards movement as the overall average increased 0.8% this quarter; bulk rents are up 2.7% quarter-over-quarter which is the largest jump since Q1 of last year.
  • While the year is off to an overall positive start, the COVID-19 pandemic places significant pressure on economic activity which will affect the short-term outlook for Atlanta's industrial market.

Atlanta Industrial Market

Similar to the beginning of 2019, Atlanta's industrial market starts the year off sluggishly, absorbing its lowest quarterly amount of space since 2012. Occupancy gains in the first quarter totaled just under a half-million square feet.

Five submarkets posted positive Q1 absorption; however, I-20 West/Fulton Industrial and Northeast Atlanta were the only ones to see levels above 300,000 square feet. With more tenants moving out of than into the submarket, South Atlanta witnessed its first quarterly occupancy loss in 4.5 years.

On the whole, there were no occupancies above 350,000 square feet this quarter. While lackluster, absorption was anticipated to be off the levels of the past three quarters due mostly to the timing of commencements. More importantly for Q1 was the strength of industrial leasing which remained elevated.

Warehouse vacancy took the biggest hit this quarter since it accounted for most of the new product added. The vacancy rate for this product type is at its highest level in 3.5 years.

Construction activity was expected to play a big part to increasing vacancy in 2020 so the upticks in both the overall and warehouse markets were not surprising. The new space also affected average rents. Atlanta's overall industrial average increased yet again this quarter; and the bulk rental rate average rose by its highest percentage in a year.

Outlook

First quarter results show Atlanta's industrial market remains sound, carrying over the positive fundamentals from last year. As the base scenario, all is well; however, the new unknown, namely COVID-19, has drastically altered the outlook for commercial real estate. 

For Atlanta, the metro area is no safeguard to the pandemic's effects. Specific to the industrial market, vacancies are expected to grow as businesses shut down and job losses mount. Supplementing this with the amount of speculative development anticipated to come online through the end of the year and the industrial vacancy rate here could hit its highest level since 2014.

Nevertheless, this particular sector of the real estate market will be less impacted overall. Aspects vital to the current economy represent some of the largest segments in Atlanta. 

Though the short-term looks bleak, the metro area's solid industrial fundamentals and stature as the southeast's largest distribution hub remain its silver lining and is likely to be the one real estate sector to get the market through its forthcoming rough patch.


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Q1 Industrial Results Mixed as Short-Term Outlook Wanes

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Harrison Marsteller

Senior Vice President, Principal

Atlanta

Harrison Marsteller began his career at Colliers International in Atlanta soon after graduating from University of Alabama with a BBA majoring in Finance and economics. Harrison joined the team of Sean Boswell, Darren Ross and Scott Plomgren, a team of industrial professionals with over 35 years of experience and 90,000,000 SF transacted. 

Harrison’s area of interest and expertise is primarily the Atlanta industrial market, particularly the I-20 West and Northeast Atlanta submarkets.  Harrison provides his clients with site selection, market research, financial analysis, and transactional services including leasing and purchasing new space and subleasing or selling excess space.

Harrison’s focus and dedication to meeting his clients’ needs provides him the ability to deliver outstanding service to both landlords and tenants.

 

 

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