SPECIAL REPORT: User Demand Growing for Small Industrial Condo Space

ATLANTA-Like Orlando and Miami, small industrial condo space is at a premium in metro Atlanta these days, as developers strive to keep up with demand by users needing an average 20,000 sf or less, industry sources tell GlobeSt.com.

One major reason for the shortage of smaller condo units is that most developers are focusing on delivering larger product rather than constructing smaller space for local businesses.

Even though about 80% of the tenants in metro's 450-million-sf industrial market occupy an average 20,000 sf, "new construction starts [in 2006] are primarily big bulk 500,000-sf and up distribution buildings that cater to minimum 75,000-sf tenants and up," Jeffrey A. Nickol, president, Nickol Commercial, tells GlobeSt.com.

Small-building developers such as Northpoint Group, R&R Developers, Taylor & Mathis and Nickol Commercial tell GlobeSt.com they can't keep the product on the shelf for long as buyers snap up the space for an average $50 to $100 per sf.

"Very few developers are building multi-tenant parks that cater to the 80% of the tenants in the market," says Nickol. "No one will begin building these types of buildings until rental rates start to escalate."

Locally based Colliers Cauble & Co. puts general warehouse rents at $2.50 to $2.75 per sf; shallow-bay distribution space at $2.75 to $3.75 per sf; and flex industrial product at $5.50 to$7.50 per sf. Because of limited supply, "small tenants in the 5,000-sf to 30,000-sf range can anticipate paying higher rents" in the near future, the developer predicts.

Nickol notes "there are fewer than 20 buildings currently for sale in the 10,000-sf to 30,000-sf range in the Atlanta market." Prices run from $50 to $100 per sf. "Residential developers have purchased some of the last few good industrial sites in the metro area, further depleting the supply," the developer tells GlobeSt.com. "Based on the limited supply of land, developers are moving west, north and south into Henry, Jackson and Douglas counties."

Nickol says "high construction costs and limited land supply are putting the replacement of smaller free-standing buildings [10,000 sf to 30,000 sf] in the $90 to $100-per-sf range." He says hard construction costs are up over 40% from two years ago due to the increase in concrete and steel especially.

"Interest rates have been historically low and space for lease is becoming harder to locate," Nickol says. "This has pushed tenants to buy smaller buildings at an alarming rate in the past two years."

As an example, he points to Northpoint Group's Northpoint Duluth park on North Berkeley Lake Road in suburban Duluth. Northpoint sold out the entire park at prices in the $125-per-sf range. The condos were sized 1,500 sf to 5,000 sf. Another developer, R&R, also sold out most of its condo parks on Barrett Parkway and in suburban Lawrenceville at prices in the $90 to $125-per-sf range.

Taylor & Mathis built a 75,000-sf industrial condo building in 2005 in the northwest Atlanta submarket and has pre-sold 50% of the inventory at $75 per sf for the shell alone.

Peachtree Square Industrial Park, a joint venture of Nickol Commercial and Weaver & Woodbery, bought the 16-building, 301,000-sf property in late 2004, renovated the entire site and sold off six buildings in 90 days. The buildings were sized 13,000 sf to 25,000 sf and sold for prices in the high $60s per-sf, Nickol says. The partners have two remaining buildings for sale.