Wednesday, February 27, 2013
Activity in the
industrial real estate market has remained fairly high and stable since
2009. The fourth quarter of 2012 showed
activity at 10.2 million square feet, ending the year with a total of 45.8
million square feet of activity. This
high level of activity in the last quarter is pretty surprising because, as Sim
Doughtie states in our most recent Point of View, “typically
industrial activity decreases 20 to 30 percent during a quarter when national
elections are held.” The reason the Atlanta industrial market
did not seem to follow the trend this time is probably because many industrial
building owners decided to sell property before the end of the year to avoid an
increased capital gains rate in 2013. Atlanta
Although the high level of industrial activity over the last few years sounds great and seems like it means good things, when compared with inventory levels for the same time period, we have to realize that the market probably isn’t improving for us as much as we hoped.
The top graph in the slide shown below shows the square footage of deals signed each year. These figures have stayed fairly high even throughout economic downturns. The bottom graph shows these same figures for square footage, but compared to the entire
industrial real estate market. Activity, when compared to inventory, has
been very low for the last several years. Atlanta
Competition in today’s market is much higher than in previous times. King Industrial currently tracks over 660 million square feet of industrial and service space in Metro Atlanta. As the total square footage of transactions remains fairly stable, the total industrial inventory base continues to grow. This means that activity, as a percent of total market inventory, continues to decrease. Charlie King sums it up well as he says, “we are in a much more competitive market with more empty space, but chasing the same number of deals.”
at 10:36 AM
Tuesday, February 19, 2013
Over the past ten years, new construction in the
Atlanta industrial real
estate market reached a high of around 14 million square feet in 2005 and a low
of about 2.5 million square feet in 2011.
New construction in 2010 came to just under 2 million square feet of
space. The fourth quarter of 2012 showed
new industrial construction in Atlanta
to be at about 3.7 million square feet. This
is an improvement of about a million square feet over total new construction
for 2011 and 2010, but does it really mean good news for the Atlanta industrial market? I don’t think anyone can be sure.
It is worth noting that about two-thirds of the new construction reported at the 4th quarter of 2012 was build-to-suit and about one-third was spec construction. Of the one-third spec construction, most of that was the IDI development.
Although in 2012, there was a slight increase in the amount of spec construction due to IDI, we still seem to be following the same general trend of mostly build-to-suit construction for the past few years. Since 2009, the vast majority of new construction has been build-to-suit mainly for two reasons. First, our excessive inventory of available space keeps prices down by enough that new construction has a very hard time competing with the prices of used space. Second, there are many older, big-box buildings that have low ceilings and not enough trailer parking. The majority of the build-to-suit construction winds up being the consolidation of several different buildings or relocation from an old facility to a new facility that can better accommodate the needs of current users.
Build-to-suit construction can make activity appear to be improving, but we have seen that this does not usually translate to a notable impact in net absorption. According to Charlie King, “this is because most of the companies involved in the build-to-suits are already located in
and usually give up just as much or even more space than they occupy in a new
construction. This leads to very little
net absorption and more functionally obsolete buildings on the market.”
From a developer’s perspective, things are definitely not great. The
Atlanta market still has a great deal of
space that needs to be absorbed and owners of older buildings are faced with a
problem because these spaces are proving difficult to lease. We are still a long way from seeing the same
level of new construction that took place in 2005, but maybe it is best if we
don’t reach such a high level again and avoid such a huge crash in the market
over the next cycle.
at 8:36 AM
Tuesday, February 12, 2013
I think it’s safe to say that most people are trying not to get their hopes too high about the full recovery of the real estate market, or even the overall economy. However, it’s hard not to be pleased after hearing that in the 4th quarter of 2012 the Metro Atlanta industrial real estate market showed the highest amount of net absorption so far since 2007.
The most severe negative net absorption the Atlanta industrial market has gone through took place between the 4th quarter of 2008 and the 4th quarter of 2010. Since then, net absorption has been steadily improving. At the end of last year, the
showed three consecutive quarters of positive net absorption. The 4th quarter of 2012 showed net
absorption of 5,155,035 square feet, which is almost double that of the 3rd
In 2009, total net absorption in the
industrial market was -17 million
square feet. This is the worst figure
for net absorption that this area has ever seen. Total net absorption for all four quarters of
2012 came out to 5.2 million square feet.
This is the first year that has shown a positive figure since 2007, when
net absorption totaled 8.3 million square feet.
Total activity in the 4th quarter of 2012 was 45,828,684 square feet, which compares fairly well to the record high of 50,437,996 square feet of activity in the 4th quarter of 2007. The last few quarters have definitely shown improvement for the Atlanta industrial real estate market. Hopefully the next few months will bring more positive figures and good news to report!
at 11:19 AM