FOURTH QUARTER, 2018
After strong absorption in 18Q4, Atlanta looks to have broken out of a holding pattern in vacancies that it has maintained for nearly three years. Further, new office development this cycle has generally been build to suit, with State Farm, Cox Communications, and NCR leading the way. And even though Atlanta is experiencing the highest level of construction in the current cycle, the net amount of new supply still falls short of Atlanta’s historical average. Still, several recently announced projects could send construction levels higher in the near future, with high levels of unsigned space available.
With these favorable conditions in Atlanta, and so much capital in the marketplace, the metro has been a lucrative environment for deals this cycle. Over 80% of institutional-grade assets have traded at least one time in the last seven years, which may be a partial cause for a slow down in investment volume from a peak in 2015. Yet, average pricing continues to hit new highs and average cap rates for 4 & 5 Star buildings are being reported sub 6.5%.(See full review)
The industrial market in Atlanta continues to surge, benefiting from its role as a national distribution hub, a growing Port of Savannah, and from the rapid growth in the metro itself. Logistics space dominates the market, accounting for nearly 80% of all supply. That share is only expected to increase as major tenants continue to ink deals for modern warehouses near interstates in the suburbs, while smaller industrial buildings inside of the perimeter are prized for last-mile connectivity. In removing low-functioning supply in the city core, and adding build-to-suit facilities in the industrial nodes, overall vacancy has steadily fallen throughout the cycle, reaching a historical low in late 2018. With vacancies now on par with the national average, developers have started construction on a pipeline likely to set a cyclical high in 2019, with over 18 million SF in deliveries.
These conditions have created an environment where industrial landlords can push rents, and cumulative rent gains in Atlanta have been in the top third of the nation since the beginning of 2015, among major metros. Fundamentals are also attractive for investors, who have traded more than $2 billion in industrial assets each of the last five years, while setting a new all-time high in 2018 at over $3 billion. Pricing continues to appreciate, with the average over $60/SF in 2018. This has helped push cap rates below 7% for the first time, in 2018. (See full review)