Atlanta Industrial Summary
Momentum in Atlanta's industrial market has stalled significantly from record-low vacancy and record-high leasing just a few years ago. Net absorption was positive in 24Q1, but 35% below the first quarter average during the three years prior to the pandemic and less than half of the quarter’s 4.4 million SF of net completions. With seven straight quarters of rising vacancy, the market’s vacancy rate has risen above the 10-year average of about 6%. Recent distribution center layoffs and closures by third-party logistics firms, like EVO Transportation & Energy Services, GXO Logistics, and Saddle Creek, have muted absorption. At the same time, the volume of speculative projects completing construction remains elevated.
At the end of 2023, vacancy lifted above the national average for the first time in three years. But the increase has not been felt evenly across property size. In properties, smaller than 100,000 SF, vacancy increased by 140 basis points going from 3.3% to 4.7% over the last year. Meanwhile, the predominance of large-box speculative construction has created significantly higher availabilities in industrial properties larger than 250,000 SF, which now have a vacancy rate of 7.1%, up 280 basis points over the past 12 months.
A structural shortage of small-bay space will keep availabilities low in infill locations. Additional demand for adaptive reuse projects for multifamily and mixed-use developments in close-in areas, especially BeltLine-adjacent neighborhoods will likely continue shrinking urban infill inventory as space is converted.
Conversely, big box spaces in some pockets of the market are proving harder to fill. While the overall vacancy for buildings 250,000 SF or larger in Atlanta is about 7%, it is over 20% in the Kennesaw/Acworth Submarket. The area has about 6 million SF of big box space to fill after developing 37 of these properties since 2020, seven of which are 1 million SF or larger.
Well-located assets, particularly those in the southern part of the region around the airport and along I-75 in Henry County, still command large rent increases. Marketwide rent growth has slowed from a peak of 13% recorded in mid-2022 to 8.8% as of 24Q1. Growth is likely to decelerate further this year as vacancy remains at the highest levels recorded since 2016.
However, the same challenging financing environment that has slowed sales volume over the past several months could help strengthen market fundamentals after 2024. Construction starts have declined precipitously in Atlanta since mid-2022, even more so than in other major U.S. markets. That will result in fewer deliveries in coming years, which likely positions Atlanta to return to tighter vacancies and reaccelerating rent growth in 2025-26.
