Mid-Size Industrial Construction on the rise in Atlanta

Lisa Pittman • 3/30/2020
The Atlanta industrial market is ranked among the top three markets in the United States for new construction deliveries. With 34.9 million square feet (msf) anticipated to deliver by the end of 2021, the Atlanta pipeline exceeds that of all major industrial markets except Dallas/Ft. Worth (46.3 msf) and Inland Empire (45.7 msf). Industrial deliveries are at an all-time high, but a shift in project size is becoming more evident in 2020.


Atlanta industrial construction completions

Larger buildings (1 msf+) have comprised the bulk of new construction over the past several years. In 2018 and 2019, nearly 38.3 msf of new product was added to the Metro Atlanta inventory, 40% of which was in a big-box facility. As the need for large space seems to have largely been met in Metro Atlanta, and as available land becomes scarce, development of big-box space has slowed.

In the early months of 2020, the 1.0-msf Palmetto Logistics Center and Gardner Logistics Center Building 1 each delivered on a speculative basis in I-85 South and I-75 South, respectively. Two additional big-box facilities are currently under construction in the southern portion of Atlanta with anticipated 2020 completions, the entirety of which remain available for lease. An eCommerce firm is currently building a 2.8-msf, four-story distribution center in Stone Mountain—the first of its kind in the Southeast.

However, the bulk of new product slated to enter the market in 2020 is contained within mid-sized buildings: 39 facilities from 100,000-599,999 sf are under construction totaling 10.8 msf. Sites specifically in the 300,000-599,000-sf range comprise 35.8% of the product expected to deliver this year. By comparison, in 2019 buildings of this size comprised less than 19.4% of the total. This rise of interest in developments of this size correlates with an increased demand among tenants for leases in this size range.


Atlanta industrial demand

As uncertainty remains high (due to COVID-19, U.S.-China tensions, and economic fluctuations), the average deal size has begun to shrink in recent months. However, demand for spaces in the 300,000-599,999-sf range rose dramatically, skyrocketing 81.7% from 2018 to 2019. As a result, buildings in this size range recorded a substantial vacancy decline, falling 480 basis points to 8.3%.


Atlanta industrial submarkets

In 2019 and the early months of 2020, construction completions were concentrated heavily within a few submarkets, with I-85 North, I-85 South, and I-75 South accounting for a combined 70.2% of the new inventory delivered to Metro Atlanta. The I-85 North Corridor submarket alone housed 28.5% of Atlanta’s construction completions, totaling 7.1 msf. This was driven by the delivery of three big-box spaces—two speculative facilities and a build-to-suit for Haier GE Appliance.

Contrary to the heavy concentration of 2019 and early 2020 deliveries, product currently under construction is more evenly distributed across Metro Atlanta than the space that delivered last year. Four of Atlanta’s 10 submarkets have more than 2 msf currently in development, and the highest volume of impending new product is concentrated within the Airport/South Atlanta submarket. While over 3.8 msf are currently under development in this area, only one of these 10 projects is over 1 msf. Meanwhile, there are currently five mid-sized (300,000-599,999 sf) projects under construction in the submarket, accounting for 55.6% of the area’s new product.


Atlanta’s industrial construction pipeline will remain robust through 2020 and 2021, outpacing nearly every other market in the country. The bulk of warehouse-using tenants signing new leases are those who are opting to expand their presence in Atlanta with multiple locations, which runs opposite of the trend in office space in which existing big players are moving into newer space and leaving availabilities in aging buildings behind. Demand for space in the logistics hub of the south will persist, though the average size requirement of space users has begun to decline.

Larger construction projects are slowing as eCommerce and logistics big-box users approach their ideal occupancy, lessening the need for 1 msf+ space. As requirements for mid-sized warehouses climb, expect landlords to become increasingly amenable to dividing large buildings among several smaller tenants. Simultaneously, larger available plots of land have dwindled in Metro Atlanta, further contributing to developers’ decisions to build smaller. As high-acreage sites become increasingly scarce, the redevelopment of more antiquated properties (metal construction, low clear heights, etc.) could become a more viable option, especially as rents continue to trend upwards.

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