Retail Takes a Hit; 9% Vacancies Highest in Seven Years

"The effects of strong construction volume, decreased tenant demand and a rash of store closings will continue to impact the Atlanta market through 2002," Michael Crawford, Bullock Mannelly's research director, says in the report.

"With overall job growth figures surprisingly flat in 2001 and consumer confidence descending from second quarter last year, the Atlanta commercial real estate market was dealt a strong blow across all product types," Crawford says.

Grocery-anchored centers in well-located areas remain the preferred retail investment product, as they are across the country. "Competition among Atlanta supermarkets has remained heated following a wave of activity during the last three years," Crawford says.

Cub Foods, once Atlanta's sixth largest grocer and high-end Harris Teeter, both left the turf in 2001, closing a total 30 stores. Wal-Mart and Target pounced on the opportunity and gained additional market share, the report notes.

Keeping the vacancy level high is the annual delivery of four million sf of new product over the last five years. Two new regional malls accounted for half of the new space. They were the Mall at Stonecrest in Lithonia, GA and an outlet mall, Discover Mills in Lawrenceville, GA. Each suburban property is 1.3 million sf.

Vacancies jumped 2.7% in 2001 from 6.3% in 2000 and about the same level in 1999. Vacancies remained at 6% in 1997 and 1998; hit 7% in 1996; 7.5% in 1995; and 7.8% in 1994.

What may bring down the vacancy level somewhat is an anticipated slowdown in new construction. "The momentum of new retail development will likely continue to slow during the next 12 months," Crawford says. "Although strong housing activity has prolonged new retail development, with more than 48,000 single-family permits issued last year, builders are showing more caution on both size and location of new projects."

A total 3.5 million sf of new retail space is currently under way. The two largest projects expected to enter the market this year are Henry TownCenter in McDonough, GA and the second phase of MarketPlace at Mill Creeek in Buford, GA. The two projects account for 30% of the total construction volume in the pipeline.

Community-size centers Kohl's at Hamilton Mill Shopping Center in Dacula, GA and Wal-Mart Super Center in Deerfield Square, Alpharetta, GA, represent an additional 40%.

Those percentages clearly show developers are being selective. "New construction remains focused on fewer projects within the hottest and fastest growing areas of the city," Crawford says.

"Although the recession has caused the (retail) market to decline in terms of tenant demand and rent revenues, Atlanta is anticipated to bounce back faster than most markets when conditions improve," the researcher says.