This, Too, Shall Pass
Unfortunately, the problems that engulfed the Atlanta industrial market in 2008 have spilled over into the first quarter of 2009. The Atlanta industrial market continues to struggle with a lack of demand and tenant turnover continues to erode its tenant base. Likewise, new business ventures remain scarce and landlords are facing an increasingly difficult leasing environment.
During the first quarter, widespread tenant turnover, along with diminished leasing activity, caused eleven out of twelve metro Atlanta submarkets to post negative net absorption. The 8,593,127 square feet of activity Atlanta managed to generate was washed away by a torrent of outflows, resulting in -3,898,734 square feet of negative net absorption. In a historical milestone, the Atlanta industrial market recorded -10,063,236 square feet of negative net absorption over the last four quarters.
In the first quarter of 2009, the Fulton Industrial district and Peachtree Industrial corridor bore the brunt of this downswing combining for -1,625,428 square feet of negative net absorption. Likewise, the I-85 North distribution market continued to struggle with tenant turnover. This submarket churned out 1,981,916 square feet of activity; however, this productivity was overshadowed by outflows, resulting in -249,135 square feet of negative net absorption.
Consequently, Atlanta’s availability rate moved upward six tenths of a percent to 18 percent in the first quarter, matching its highest point since the second quarter of 2005. Furthermore, the uncertain financial environment has caused developers to shelve spec construction projects and focus on build-to-suit development. Over the last year, 65 percent of the new construction projects launched in metro Atlanta have been build-to-suit.
The market’s surplus of available space has created tremendous opportunities for tenants looking to negotiate leases and lease renewals with favorable terms, which bring much needed cost reductions. Yet in contrast, landlords are feeling the pinch with deals and credit tenants in short supply. It is also important to note that a significant portion of the leasing activity over the last year can be attributed to lateral movement by companies downsizing and consolidating operations as opposed to new business ventures.
It was a difficult first quarter for the Atlanta industrial market. A sharp decline in consumer spending, along with the banking crisis, stymied business growth and caused many businesses to fail. Nevertheless, Atlanta will weather this storm as it has done in the past and emerge stronger and healthier from this challenging time.
Stephen C. Ratchford, SIOR
Senior Vice President
Submarket overview can be viewed here
Friday, May 1, 2009
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