As COVID-19 spread across the country, real estate markets across the country have been affected in various ways. However, the industrial asset class seems to endure despite the challenges that the COVID-19 recession has brought forth. Much of this is due to the industrial market’s strong position heading into the pandemic.
Real Estate Fundamentals
Heading into the current downturn, the Atlanta industrial market fundamentals were experiencing record-breaking performance. Since its low point in mid-2012, the average asking rental rate has been on a tear as Atlanta began to emerge as a true logistics hub for the Southeast, climbing 20.0% since the Great Financial Crisis (GFC) to $4.00 per square foot.
The overall warehouse/distribution (W/D) vacancy rate held steady at 7.7% after falling to an all-time low in late 2019. Following two years of the strongest lease activity on record in 2018 and 2019 (28.8 msf and 31.5 msf respectively), Atlanta recorded its healthiest quarter of new demand in two years, with more than 11.1 msf of new leases signed in Q1 2020. By the end of Q3, the 2020 YTD total had already surpassed the previous five-year annual average.
In response to prolonged demand for premier space and the constraints of the existing inventory, development has boomed in Atlanta. Vacancy has continued to fall dramatically since the GFC recovery, despite 97.5 msf of new product being added to the warehouse inventory.
What’s Different This Time?
The emergence of e-commerce has changed the industrial landscape in Atlanta since the last economic downturn. New construction projects abounded in recent years to meet the burgeoning need for modern warehouse and distribution facilities.
Since the onset of the GFC in 2007, the W/D inventory has grown by 32.0% or 131 msf. In 2018 and 2019 alone, 38.3 msf of new warehouse product was added to the Metro Atlanta inventory, 40% of which was in a big-box facility (1 msf+).
Larger construction projects are slowing in 2020 as e-commerce and logistics big-box users approach their ideal occupancy and as larger available plots of land become increasingly scarce. However, a dramatic increase in demand for mid-size facilities (300,000-600,000 sf) keeps the construction pipeline robust—an additional 20.4 msf of warehouse product is slated to deliver during 2020.
What to Watch
A variety of factors have the potential to impact Atlanta’s industrial market. On one hand, the robust construction pipeline threatens oversupply and declining port volumes pose risk to supply chains. On the other, the low cost of living will continue to fuel in-migration and strong workforce demographics with a highly diversified economy and young industrial talent should drive growth. Additionally, Atlanta’s status as a major logistics hub for the Southeast is likely to persist.
For more, read our “Industrial: The Recession Proof Asset Class?” report.