Atlanta Industrial Leasing Report
Atlanta's vacancy rate drifted higher through the eight months of 2023 after reaching record lows in 2022. However, at 6.0%, it remains far below the market's 10-year average of 6.1%. A combination of slower leasing activity and continued new deliveries drove the increase. The trailing four-quarter leasing total for Atlanta fell to 37.5 million SF as of 23Q2, from peaks above 60 million SF the in 2021. The slow first half pushed leasing volume below pre-pandemic trends. By comparison, annual leasing activity averaged 47.1 million SF between 2016 and 2019.
Connections to the growing ports of Savannah, Charleston, and Jacksonville, combined with a geographic location along the growing Interstate 85 corridor, position Atlanta as a distribution hub for both major Southern and lower Midwestern population centers. Recent major leases and move-ins from Broadrange Logistics, Sam's West, Home Depot, UPS, and Dollar General solidify that position. Population growth in the broader Southeast region has bolstered aggregate spending in the market, even as per capita consumer spending has declined. Recent tightening of credit markets, however, has put a dent in the home building sector, and inflationary pressures have consumers cutting back from an unprecedented spending spree. These trends are beginning to impact the Atlanta industrial market. American Building Supply vacated a 635,000-SF warehouse in early 2023, GXO Logistics laid off 77 workers in Fairburn, and Amazon has put several spaces it leased in 2021 and 2022 up for sublet. Sublease availabilities increased to 10.7 million SF as publicly traded retailers such as Big Lots, which is subleasing its 485,000-SF McDonough distribution center, continue to report challenges with excess inventory.
A coming supply expansion is likely to lift vacancies through 2023. An additional 24.6 million SF is underway and slated to deliver over the next two years, with around two-thirds of that unleased. However, supply impacts will not be felt equally across all properties. Medium-sized to large boxes are likely to see the largest surge in availabilities. About one-fourth of under-construction inventory is between 200,000 SF and 400,000 SF. More than 80% of under-construction properties in this size class remain unleased. Among existing properties, the vacancy rate is highest, at 7.1%, in this midsize class, and the availability rate is more than 10%.
In the long term, though, the growth of vehicle manufacturing in the broader Southeast, combined with federal investments in solar and semiconductor production, diversifies the sources of demand for industrial space in and near Atlanta. SK Innovation's new facility in Commerce, just northeast of the Atlanta metro, will serve as one of the largest hubs of electric vehicle battery manufacturing in the world. In December 2022, Hyundai and SK announced plans for an additional EV battery facility in Bartow County along the I-75 corridor northwest of Atlanta. That came after Rivian's announcement it will build a new electric vehicle manufacturing plant on the eastern fringe of the metro along I-20 in southern Morgan and Walton counties. The $5 billion investment is slated to employ 7,500 workers when fully staffed and could help augment industrial demand in nearby submarkets such as Rockdale/Newton and South Walton County over the next several years. More recently, European battery-maker Freyr announced plans to build a $2.6 billion plant in Newnan, a suburb southwest of Atlanta.
