At the end of this year's first quarter, about 2.5 million sf of industrial space was under construction, compared to three million sf at the same time a year ago and 12.1 million sf during the construction boom of 2001. First-quarter deliveries totaled almost 1.7 million sf versus 5.2 million sf in first quarter 2001.

"One positive sign for owners and investors is that delivered space increased during the past 12 months while new construction decreased, which reduced the pipeline inventory," says Erik Pawloski, research director at Bullock Mannelly.

The warehouse sector continues to capture almost all deliveries, accounting for about 1.6 million sf of the almost 1.7 million sf delivered to date in 2004. "Once again, the flex market recorded no deliveries, having recorded no new inventory for four of the past five quarters," Pawloski says.

After posting a positive net absorption during fourth quarter 2003, the industrial market dipped back in the red, recording a negative net absorption of 1.6 million sf in the first quarter. "Despite this being the lowest quarterly net absorption in two years, optimism abounds as three of the nine submarkets posted positive results," Pawloski notes.

Most of the negative net absorption, 1.1 million sf, was recorded by the largest northeast Atlanta submarket. With just 381,000 sf, the south Atlanta submarket led absorption activity, followed by the Snapfinger and Interstate 20 East submarket with 297,000 sf and Stone Mountain with 126,000 sf.

On the capital markets scene, Pawloski says short-term rates remain near all-time historical lows. "After falling from almost 7% at the beginning of 2001 to the current level of 1.18%, it appears the Libor has finally stabilized," he says. Long-term rates "continue to be very attractive," the researcher says. He notes average rates recently increased to 4.62% from 3.75% "due to positive economic announcements."

Pawloski says that "with an abundant amount of equity available for investment and historically low interest rates, investors "continue to force cap rates lower." He says the average national flex/R&D cap rate is 9.02% while the national warehouse cap rate is 8.45%.

"These rates represent a drop of 60 to 80 basis points from their peaks witnessed in early 2002," Pawloski says. "While industrial market cap rates have declined, they have not dropped as dramatically as other commercial real estate types."