Retail Vacancies Hit 9.6%, Investors Unfazed

ATLANTA-Although rents are down and vacancies are up, national investor demand for grocery-anchored neighborhood centers in metro Atlanta remains high, according to a new year-end industry study by Marcus & Millichap Real Estate Investment Brokerage Co.

“Investment activity has shown no signs of weakness,” John M. Leonard, regional manager of the firm’s Atlanta office, says in a prepared statement. “Atlanta’s retail market has held up well, considering the economic malaise over the last year.”

Rising vacancies have pushed rents down 5% to an average $15.50 per sf. Average rents for new construction fare better at $22 per sf. Buckhead boasts the highest average at $32 per sf. Average asking rents have been sliding for the last 18 months.

Leonard projects vacancies will rise 0.3 percentage points over the next six months because of slow absorption. “Rents will remain under pressure for the remainder of 2002 before experiencing improvement in 2003 with a 2% increase,” Leonard says.

Buckhead leads all submarkets with only a 5% vacancy level. South Metro is at an 8.5% vacancy level while the Central submarket on the other side of town is at 11%.

“High levels of new home development will be the catalyst for neighborhood shopping center construction during 2003,” Leonard says. But construction volume will not be high, declining to 4.5 million sf “as the market struggles to absorb the 5.3 million sf expected to be completed in 2002,” he says.

During 2001, over 7.5 million sf of retail was completed. About 2.6 million sf was in regional mall space. The Mall at Stonecrest and Discovery Mills each accounted for about 1.3 million sf. “Although mall construction has waned, other retail property types continue to move through the pipeline,” Leonard says.

Power centers, however, have dropped to the bottom of the construction activity list. “These centers came to prominence during the 1990s; are traditionally anchored by several big-box retailers; and have been unwelcome additions to neighborhoods,” the broker says.

Investment activity in big-box space has waned over the last year, but sales prices of those properties continue to rise. “The highest-quality leases are still commanding premium prices, as evidenced by the dramatic increase in the average price of single-tenant properties, to $150 per sf, up from $100 per sf in 2001,” Leonard says.

He predicts Atlanta real estate and business generally will recover in 2003. “Although growth at many of Atlanta’s largest corporations has been slowed during the national economic downturn, it is expected that the area will once again be at the forefront as economic recovery gains momentum,” Leonard says.