Atlanta Retail Market Update
Few retail markets are enjoying more success, for either owners or tenants, than Atlanta in heading into the end of 2023. Tenants are absorbing space quickly, and given a relatively shallow development pipeline, near-record-low availability, and significant gains in retail sales, pricing power remains with landlords. Tenants are willing to pay higher rents to be near Atlanta's varied pockets of strong buying power, growing population centers, and recovering office markets where space remains scarce.
Strong population growth should continue to boost the Atlanta retail market in the near term, though pockets of weakness still remain. The owners of some of the region's underperforming malls are planning major redevelopment projects, and retail centers in areas with below-average demographic profiles as well as ground-floor retail spaces in office-heavy urban districts face challenges backfilling vacancies. On the other hand, large-scale space availabilities in high-demand areas remain limited, and a long list of potential tenants stand ready to fill space vacated by bankrupt category killers. For example, Burlington has already assumed the leases on three of the market's 16 former Bed Bath & Beyond spaces.
New construction has largely followed new rooftops into suburban Gwinnett County, Cobb County, and beyond, though total new supply has not kept pace with population growth. The under-construction pipeline amounts to only a 0.5% expansion of total inventory, and more space has been absorbed than supplied every year over the past decade except for 2020. That's brought availability down to a historic low of 3.5%, with even lower availability in power centers, smaller-footprint strip centers, and freestanding retail. With record-low availability and a growing population to boost consumption, Atlanta is one of a few markets where retail rent growth, at 6.7% year-over-year, is outpacing inflation. More than 90% of retail properties delivered since 2020 are leased while just under 14% of current under construction properties are available for lease.
General freestanding retail has accounted for about 40% of absorption and nearly 60% of construction since 2022. Activity has centered around preleased and build-to-suit suburban properties with triple net leases in place, while mixed-use redevelopment opportunities and experiential retail have been most common in urban areas.
A tighter lending market and higher interest rates continued to slow retail investment heading in late 2023. Sales volume has totaled $2.2 billion over the past 12 months, down considerably from the record of more than $4.5 billion that closed in 2022, as buyers and sellers remain in a standoff. While still wide, the spread between buyers' bids and sellers' asks is starting to narrow. Most deals that have closed so far in 2023 included portfolio purchases from institutional and international investors and sale-leaseback deals.
In the longer term, continued population growth in the Atlanta area and broader Southeast provides the market with the demographic fundamentals to weather a potential economic downturn, and the relative scarcity of retail space bodes well for stable vacancy rates and rents for the foreseeable future.
