Danielle Douglas is associate editor of Real Estate Forum.

ATLANTA-While robust population and job growth has fueled this city’s property markets for the past few years, it may not be enough to combat stagnant rental rates and flat absorption in many segments. This was the overarching concern of the majority of speakers at the first RealShare Atlanta conference.

More than 200 of the area’s leading real estate executives gathered at the Westin Buckhead to hear owners, developers and brokers give their assessment of the state of Atlanta¹s office, residential and industrial markets.

In a city noted for its numerous groundbreakings, talk of construction costs and overbuilding took center stage. In a debate-style discussion that kicked of the event, Hines’ vice president, Kurt Hartman, suggested that rising construction costs have served as a barrier to entry¬ particularly in residential helping to stave off oversupply in the market. However, John Shlesinger, vice chairman at CB Richard Ellis, contended that, at least in the office sector, many developers see these costs as a mere formality of building. Further, as returns on acquisitions begin to reflect yields from new construction, developers are given more of an incentive to build.

“With what developers and institutions are paying for real estate, the returns that they are yielding are no different or higher than the returns from new construction,” commented Shlesinger.During the Town Hall Meeting session, Paul Little, senior vice president of Turner Construction Co., offered, “we believe that the market has actually plateaued or softened a little bit from a cost escalation standpoint. A year ago the escalation rate was about 12% for the year, so it was moving pretty rapidly. This year, it’s about 9%, so it’s tapering off.”

Much of the construction in recent years has been concentrated in the Downtown Atlanta, Midtown and Buckhead. While both Hartman and Shlesinger were bullish on Downtown and Midtown, they cautioned restraint in Buckhead. Neither viewed the submarket as one that has the proper infrastructure for the breadth of development that it is enduring.

In terms of rental rates, modest upticks, not tremendous spikes are expected, said Shlesinger. Forecasts of 5% increases, he shared, are unlikely as, “Historically in Atlanta, we haven’t seen a half a percent raise in rents in the past couple of years.” Though Hartman mostly agreed, he offered that there would be improved adjustments to measured risks, particularly as cap rate compression comes to an end.<p.One segment that is seeing some significant gains in rents is the suburban residential market, as discussed in a session on the outlook for the multifamily market. According to Bill Bollwerk, managing director of Alliance Residential Co., "suburban rents are trending up from $0.80 per sf to $1 per sf." Still, Buckhead is drawing the highest rates at $1.60 per sf. Driving much of these gains has been the influx of the "young and the restless" demographic, 25 to 35 year olds and an influx of immigrant populations.

In an office sector forecast, Kerry Armstrong, senior vice president of the Atlanta office group, for Duke Realty Corp., noted that job growth has had little effect on absorption rates for first-tier stock. Smaller companies, who are not leasing top-quality product, are benefiting from job growth, noted Connie Engel, partner at Childress Klein Properties. Rental rates, she said, remain flat while operating expenses continue to rise. However, sublease vacancy is down and existing customers in the city center are absorbing more space, reported Tad Leithead, senior vice president of Cousins Properties Inc.

While Atlanta’s industrial market has had one of the highest vacancy rates in the nation for the past few years, the growing success of the port of Savannah is expected to trickle down to the market, suggested Stephen Grable, senior vice president and principal at Colliers Spectrum Cauble Inc. During a breakout session on the state of the industrial sector, he and other panelists agreed that Atlanta would likely see growth as Savannah doubles in size over the next five to 10 years.

RealShare Atlanta, along with other RealShare events nationwide, is produced by Real Estate Media, publishers of GlobeSt.com, GlobeSt.RETAIL, Real Estate Forum magazine and other print and online publications devoted to commercial real estate.

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