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Wednesday, November 8, 2017

Key attributes of Atlanta’s industrial real estate market

By Nadine Melo (Atlanta)

Strong market fundamentals, stability and long-term growth have made industrial the most coveted real estate sector across the U.S. Nothing exemplifies this dynamic more than Atlanta’s industrial market.

Despite being one of the last markets to recover from the recession, Atlanta is not only the second most active market in the southeast, but it has absorbed a staggering 37.8 million square feet (msf) of industrial build-out in the past decade alone, according to GlobeSt.

The pace of Atlanta’s industrial market growth is even more astounding when you consider that the current year-to-date absorption of 16.8 msf has already surpassed the 2016 total by 23%, according to Avison Young Research.

Now, what exactly is driving Atlanta’s industrial growth when compared to other markets like L.A and Chicago? The panel from Atlanta’s industrial Bisnow event in September surmised that such factors as the growth of e-commerce, demographics, and location are primarily responsible.

One cannot mention the current industrial boom without talking about e-commerce first. Industrial’s growth is backed, in large part, by the changing dynamics occurring in the retail space. The internet has driven the creation of a globally inter-connected economy that has impacted both logistics and the supply chain, respectively. Resulting in smaller players competing on equal footing with their larger counterparts.

In turn, the demand generated from e-commerce is driving the need for modern building specs that requires the logistics of the industry to operate at optimal efficiency. As discussed by the panel, pricing, larger floorplates, separate entrances, drive-thru and higher clear ceiling heights (32 feet and above) are some of the prerequisites being issued by tenants today.

Big-box retailers, like Target and Amazon for example, are driving the growth of industrial product by searching for urban infill locations. As a result, retailers can fulfill orders within a 24-hour time frame and with increasing frequency, the same day, by being close to their demographic base – a marked contrast to the sector’s previous focus on location and access to infrastructure.

Proximity to a strong demographic base translates into instant access to not only your consumer, but also to talent, and Atlanta more than satisfies that need. Between 2015 to 2016, Atlanta’s population grew by 1.6%, statistically making it the ninth-largest metropolitan area in the country, according to the U.S. Census Bureau/

However, the current growth is not simply attributed to e-commerce and demographics. In fact, Atlanta has always been a major transportation hub for the U.S. As mentioned by Larry Callahan, a panelist at Bisnow’s September event and CEO of Pattillo Industrial Real Estate, Atlanta is a logistics hub by design. Since its inception in 1837, Atlanta was designed to serve as a strategic railroad junction, and its legacy is evidenced by the various railroad tracks that now comprise the Beltline.

When looking at a map, it's easy to see why Atlanta is attractive to national and foreign investors alike. Atlanta is home to the most visited airport in the world, according to Metro Atlanta Chamber, and located just 250 miles away from the Port of Savannah, the largest single container terminal in the U.S. In addition, three major interstate highways pass through the metro and provides access to 80% of the U.S market.

According to Brittany Holtzclaw, a panelist at the Bisnow event, current local industrial projects are being driven by e-commerce and investors’ desire to get close to the population base while keeping costs low. Therefore, Atlanta is a perfect market for international projects, as demonstrated by the foreign investment activity that we are seeing in the market today.

While Atlanta’s industrial market shows no signs of abating, with approximately 5.1 msf to be delivered by year-end 2017, real estate professionals can expect to face various challenges in the foreseeable future. Said challenges include: site location, construction costs, higher asking rents and traffic congestion as the metro region and industrial real estate demand continue to grow.

(Nadine Melo is the marketing co-ordinator in Avison Young’s Atlanta office. She works closely with her office’s Capital Markets group.)

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