Build-to-Suits, Small Users Drive Industrial Market

Net absorption in the final quarter of last year was over three million sf for the third quarter in a row and is expected to repeat that performance for first quarter 2005, according to a new market analysis by locally based Colliers Cauble Co.

"Not since 2000 has the city recorded absorption levels of this degree," says Colliers Cauble research director Scott Amoson. "The outcome of 2005 will be a testament as to where exactly the Atlanta industrial market is in its recovery."

Year-to-date net absorption is 11 million sf. "If another year of absorption over 10 million sf occurs, the answer will be obvious. However, given the current economic climate, the more likely scenario is for the year to see space absorption in the area of four to five million sf, at least until job growth comes back in larger numbers," Amoson.

Last year's industrial market activity here was unprecedented, the researcher says. "The metropolitan area finished the year with a solid performance resulting from a substantial increase in absorption, a 7% decrease in available industrial space and over 7.5 million sf of industrial product delivered to the market, 68% leased."

Over five million sf of industrial product is currently under construction in the Atlanta area. "Developers are as upbeat as ever and ready for a turnaround [with] most already scouting the market for the next big deal," Amoson says.

Big deals in 2004 included APL Logistics moving into build-to-suit space of 980,200 sf in the I-20 West submarket; Rooms to Go taking 623,750 sf of warehouse space in the Northeast Atlanta submarket; Clorox occupying 607,650 sf of build-to-suit space in South Atlanta; and Toto USA moving into a 498,050-sf spec building developed by M.D. Hodges, also in South Atlanta.

"Leasing demand for bulk warehouse space continues to fill the market due to large space users seeking locations big enough to fulfill their consolidation requirements," Amoson notes. Bulk warehouse accounted for 87% of total industrial absorption in 2004.

"Though bulk space users had the most significant affect on the Atlanta industrial market, the smaller space users leasing between 20l,000 sf to 60,000 sf also played an important part to the success in 2004," the researcher adds. The northeast Atlanta submarket is the most popular with developers.

Flex industrial rents average $5 to $7 per sf. Shallow bay and distribution space goes for $2.75 to $3.75 per sf. Warehouse space averages $2.50 to $2.75 per sf.

"With a tremendous amount of capital still looking to be invested into real estate, construction levels in 2005 will remain consistent to 2004," Amoson forecasts.