Atlanta Retail Market Update 20241011
Atlanta's favorable demographic trends, strong demand, and a lack of large-scale speculative supply have led to the area's tightest retail market on record. Annual net absorption has outpaced new supply for the past three years in Atlanta, leaving the availability rate at 3.8%, about 190 basis points lower than the 10-year average.
Strong population growth should continue to boost the Atlanta retail market in the near term, though pockets of weakness 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, anchor and junior anchor 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 many of the market's 13 former Bed Bath & Beyond spaces.
There is about 630,000 SF of retail space under construction in Atlanta accounting for just a 0.2% expansion of the existing inventory. Most of this space will be delivered with a tenant in place with demand from national grocery stores and expanding restaurant chains. Activity has centered around preleased and build-to-suit suburban general retail properties with triple-net leases in place, while mixed-use redevelopment opportunities have been most common in densifying urban areas. Consistently strong demand for these spaces has reduced availability to a historic low, with even lower availability in power centers and freestanding retail.
Tenants are absorbing space quickly, and with a diminishing construction pipeline, high levels of occupancy, and gains in retail sales, landlords have retained pricing power.
Retail asking rents hit a new high of over $20/SF, rising over 5% in the past year. This makes Atlanta a top large U.S. market for rent growth, along with other Sun Belt cities like Phoenix and Tampa. Still, Atlanta is one of the largest affordable markets in the country.
A tighter lending market has slowed retail investment over the past year. However, Atlanta's trailing average four-quarter transaction volume is on par with the 10-year average. The large deals that recently closed include well-located grocery-anchored developments and suburban portfolios.
Looking ahead, Atlanta's continued population growth provides the market with the demographic fundamentals to weather difficult macroeconomic conditions, and the relative scarcity of retail space bodes well for stable vacancy rates and rents through 2025.
