Market Information

Atlanta Office Market Overview
February 2010

It's the beginning of a new decade. Ten years ago businesses were concerned about Y2K, working to make sure legacy, two-digit date fields in their software and accounting programs could correctly view the year as 2000, and not as 1900. Now businesses are worried about staying solvent and surviving a recessionary period that just doesn't appear to want to end.

The commercial real estate market is not likely to recover until 2011. That's the real estate professional's view. And yes, it is unlikely in today's credit crunch that anyone can buy or build. And it is unlikely that the vacancy rate will drop much this year as companies continue to search for ways to reduce costs through lower rents and less space.

Jobs and credit are the keys to recovery. Atlanta is still hovering at just over 10% unemployment; and the state leads the country in distressed community banks that are failing due to excessive real estate loans that are now in default. Businesses can't survive without credit lines; and, until that happens, the small businesses that are likely to lead the job recovery wont be able to do so.

As always, there are rumblings of potential large deals and new office towers; but those possibilities are two to three years out. That's the oddity of commercial real estate. The long lead times for construction and large tenant moves can create a sense of activity and recovery, but the reality is that those don't reflect current conditions.

There's plenty of office space available. And, now is an ideal time to plan for the future as the prime office market areas are all pushing a 20% vacancy. Plus, landlords are willing to negotiate deals in order to get their vacancy rates down.

Tenants, however, need to be very diligent in reviewing potential leases or purchases. Potential locations need to be thoroughly inspected to determine if the building is up-to-date in regular maintenance and current building codes. And they need to check the financial stability of the landlord and of the banks behind the building loans.

Atlanta Industrial Market Overview
February 2010

Weak demand, falling values and fewer transactions keep the industrial market in a free fall that started two years ago. Like all other sectors, the industrial market is suffering from a lack of credit that is keeping both the economy stagnant and companies cautious.

As a major distribution hub, Atlanta's industrial activity--or rather the lack thereof--is a reflection of the state of the consumer-based U.S. economy. With fewer products being purchased, the need to store, sort and haul them has dropped as well.

Bright spots do exist. The large distribution centers near the airport were the only properties to experience positive net absorption in 2009 due to their proximity to the airport. That access, combined with new product, cheap rents, cheap land and low labor costs, makes it a strong regional option. As logistics and transportation become more efficient, large consumer product companies have been reducing the number of distribution centers in favor of fewer, but larger, more efficient, regional centers. Atlanta has been the choice for Southeastern hubs due to its easy access to several major population centers, including Florida and its varied transportation options.

Atlanta is also starting to attract more data centers. These users are claiming flex space for many of the same reasons as the warehouse users--the rents are cheaper, the labor costs are less, and there are lots of options.

With activity at both ends of the market, it's possible that the industrial markets will manage to start a turnaround in 2010. Only time will tell.

Atlanta Retail Market Overview
February 2010

Retail sales are trying to recover. Consumers have started spending on non-discretionary items, but the spending is still tempered by high unemployment rates that keep the unemployed from spending and the employed extremely cautious about spending.

Most national chains have cut back on store expansions, taking a long, hard look at existing leases and working to reduce their rent overhead through negotiations and space reductions. The same pattern is being repeated locally except, in these cases, they are just simply closing. Many independent local retailers made it through the drama of December 2008, but they just haven't been able to carry their business through for another year. Shoppers have to check to see if their favorite local boutiques are still open.

Landlords continue to be creative with their retail spaces, trying to re-purpose them in different ways--marketing spaces to non-traditional tenants such as libraries, schools or self-storage companies. Landlords themselves are changing as the high number of real estate foreclosures has put a greater percentage of ownership under large banks and lenders.

Atlanta's retail real estate vacancy has been rising steadily since the market peaked in 2007. Retail, in particular, is likely to be slow in recovering.