An Overview of Atlanta’s Industrial Real Estate Market
Industrial real estate demand has thrived throughout Metro Atlanta in recent years, a trend that continued through the first quarter of 2023, even in the face of a slight decrease in leasing totals. It should be noted that leasing figures set and broke multiple records during 2021 and 2022, so the minor decrease can be viewed more as normalization than a reversal in market behavior.
The city compared favorably to virtually every metro market in the United States and ranked as just one of seven cities to surpass 5 million square feet of new leasing activity from January through March 2023. The industrial market also benefited from historically low vacancy rates.
The direct vacancy rate is an industry metric expressed as a percentage and defined as the amount of physically vacant space divided by the total number of existing inventory. Under construction, industrial properties are not figured into direct vacancy rate calculations. A higher vacancy rating indicates a regional problem with realizing property income potential. At the start of 2023, Atlanta had a 3.6 percent market direct vacancy rate. This is a healthy figure in its own right and a far lower rate than the region’s pre-pandemic average of 9.6 percent.
Many vacant industrial properties absorbed during the first quarter of 2023 can be attributed to build-to-suit (BTS) properties, which involve a commercial tenant and property developer collaborating on a new facility that is subsequently leased by the tenant, typically the sole tenant. More than 20 BTS properties were completed at the outset of 2023, accounting for approximately 43 percent of the more than 9.5 million square feet of new product delivered.
In addition to low vacancy rates, the Atlanta market has benefitted from years of unprecedented leasing activity. In 2022, Atlanta owned six of the top 100 US office leases. Despite a small decrease from the previous two years, Atlanta posted just under 5.8 million square feet of new leasing space. Other top-rated metro markets for industrial real estate included Nashville, Dallas, Tampa, and Austin.
The direct asking rate is another positive trend in Atlanta’s industrial market. The direct asking rate can simply be defined as the price the property owner lists the property for. The direct asking rate can differ from the rent the tenant pays or the effective rent, which is the actual amount the property owner earns. Quarter-over-quarter direct asking rates for Atlanta warehouse space and distribution products climbed by 2.6 percent to start 2023, marking the eighth consecutive quarter in which the Atlanta Metro region set new asking rate records.
Finally, regional success could also be seen at the Port of Savannah, which is conveniently located close to Atlanta and major population centers such as Birmingham, Charlotte, Memphis, and Orlando. In February 2023, the Port of Savannah was responsible for more than 11 percent of the nation’s 20-foot equivalent container units, an all-time high for the port.
All told, 4.6 million square feet of industrial real estate space was delivered during the first quarter. Nearly 36 million square feet are expected to be delivered by December 2023. There is about 19 percent more available space compared to the same time in 2022, but the region is still considered limited in terms of space, which might influence asking rates for the remainder of the year.
