ATLANTA-Bulk warehouse leasing deals, in the 500,000-sf-plus range for the past two years, slowed in the second quarter as shallow bay distribution space absorption was up 85% from mid-year 2005 levels, according to new research by Atlanta-based Colliers Spectrum Cauble.

Net warehouse absorption totaled only 389,107 sf compared to 970,682 sf leased in the shallow bay category and 233,441sf in flex space. Year-to-date, shallow bay leasing totaled 1.89 million sf; warehouse, 1.7 million sf; and flex space, 51,966. Flex had a negative first-quarter absorption of 181,475 sf. Total market vacancy is at 11.8% versus 11.4% in the first quarter.

"Looking at the size comparison between bulk warehouse and shallow-bay deals, mid-year absorption levels, relative to the types of deals taking place, continue to show a healthy industrial market," says Scott Amoson, research director, Colliers Spectrum Cauble. "The trending vacancy rate, however, paints a different picture to the story." Vacant industrial space has been increasing over the past six months and "appears to be headed that way for the remainder of the year," Amoson predicts.

He says construction activity is "the culprit behind all of this." To date, 8.5 million sf of industrial space has been delivered to the market. Of that amount, only 2.4 million sf is leased. Additionally, 9.8 million sf is expected to be delivered between now and the end of the year, "only 10% of which is preleased," Amoson says. "With current leasing activity mostly producing lower absorption levels, the market just cannot keep up with the influx of so much vacant space."

Still, the researcher points out, rental rates are "firming but remain relatively low." Shallow bay distribution and flex rents are "beginning to see modest growth. Landlords continue to be very competitive on their bulk warehouse properties." Average asking rents in the second quarter for flex space was $8 to $9+ per sf. Shallow-bay distribution space was going for $3.50 to $4+ per sf. Bulk warehouse quarters were renting for an average $2.75 to $3+ per sf.

Most of the new leasing activity this year is taking place in Northeast Atlanta. That submarket absorbed 1.36 million sf in the second quarter, bring the year-to-date total to two million sf. "Keeping all factors in mind, industrial space absorption is expected to be a little less than the last couple of years, but reaching the 10-million-sf market, nevertheless," Amoson forecasts.

He adds, "No matter how mixed the signals may be, the important thing to remember is Atlanta continues to be a viable location as a regional transportation hub in the Southeast. The money being poured into new projects across the city, as empty as they may be, reflects investors' and developers' continued interest and commitment to Atlanta's future."