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ATLANTA-The local industrial market is expected to feel more pain as the first half of 2009 winds up, even after 1.3 million square feet of lost occupancy through the first quarter alone nearly matched negative net absorption for all of 2008, according to Jones Lang LaSalle. Fallout from US automakers is putting pressure on area parts manufacturers and suppliers.

“With the recent bankruptcy announcements of Chrysler and General Motors, this sector may take longer than most to recover,” says Lanie Rea, research director with Jones Lang LaSalle in Atlanta. Many retailers and distributors will have a long road ahead before spending increases enough to help these industries stabilize, she notes.

Landlords and tenants alike are struggling through the current economy, with building owners being reluctant and sometimes unable to shell out upfront funds for capital improvements, Rea says. Owners are instead leasing space at reduced rates, just above $3 per square foot triple net, and continue to offer more flexible lease terms, she says.

“This bodes well for tenants, as many are unsure of their own situations and have been more comfortable committing to short-term leases,” Rea observes. However, she adds that some companies have been willing to sign large, long-term deals based on their own confidence, particularly in the Airport/South I-85 submarket.

Notable examples cited by JLL include food distributor J.M. Smucker Co. leasing 556,800 square feet at Southcreek Distribution Center in suburban Fairburn. Also, D&H Distributing Co. purchased a 458,000-square-foot warehouse at 185 Coweta Industrial Parkway for $17.4 million, or $38 per square foot.

Despite Hartsfield-Jackson International Airport’s continuing status as the world’s busiest and no letup of traffic on Interstate 85, the median pricing for industrial buildings in metro Atlanta is maintaining a level of $54 per square foot, with buyers focusing on higher-quality properties with credit tenants, according to Marcus & Millichap. Average cap rates are currently in the mid-to-high 8% range, up at least 50 basis points from a year ago.

“Transaction velocity in the Atlanta industrial market declined by nearly one-third during the past year and will likely continue to slow through the remainder of 2009 due to investors’ uncertainty and limited financing,” says John Leonard, regional manager of Marcus & Millichap’s Atlanta office. He adds that discounting will emerge in warehouse/distribution facilities as tenants look to renegotiate leases in order to cut costs.

JLL notes a lack of new development in the metro Atlanta industrial market, with only 573,000 square feet delivered in six new buildings during the first quarter. No additional space is under construction for the first time in more than a decade.

Marcus & Millichap projects that 2.5 million square feet of new industrial inventory will be built throughout 2009, roughly one-third of that from the previous year. Added stock and declining demand are forecast to drive vacancy up by a full percentage point this year, to 17%.

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