Atlanta Industrial Summary
After a record run of tightening vacancies and escalating leasing activity, Atlanta's industrial market slowed in the first half of 2023. A handful of move-outs and layoffs in the distribution sector have slowed absorption, and a record wave of supply has begun to deliver just as preleasing has begun to soften. Still, the change appears to be more normalization than downturn, and one landlord broker likened it to shifting from fifth to third gear. Despite four straight quarters of rising vacancies, and the first negative absorption reading in three years in 23Q2, the market here is still tighter that any time before 2021, with roughly 5.3% vacancy.
While vacancies are likely to continue rising through 2023, supply concerns do not appear insurmountable. Even in the unlikely event that all 18 million SF currently unleased and under-construction space delivered tomorrow without a tenant, vacancies would still only rise to 2016 levels. However, the predominance of large-box speculative construction is likely to create significantly higher availabilities in industrial spaces larger than 250,000 SF. This could be especially challenging in exurban areas along the Interstate 75 corridor in the northwest of the market.
On the other hand, a structural shortage of small-bay space will keep availabilities hard to come by in infill locations. And additional demand for adaptive reuse projects in close-in areas, as well as a burgeoning film industry seeking space for sound stages, is likely to continue shrinking infill inventory as older space is converted.
Well-located assets, particularly those around Hartsfield-Jackson International Airport and key interstate nodes, still command large rent increases here, and year-over-year rent growth is still outpacing the national average. The pace of that growth, though, is beginning to level off as landlords find themselves with more available space to fill. With slowing rent growth, Atlanta is likely to retain its place as one of the least-expensive major industrial markets.
Longer term, though, the same challenging financing environment that has slowed sales volume in 2023 could help strengthen market fundamentals in the years to come. Construction starts have declined precipitously since mid-2022. That will result in fewer deliveries in late 2024 and 2025, which could tighten vacancies and stabilize rent growth in 2025.
source: costar
