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