Companies leased more Atlanta industrial space to start 2024 than they did the year before, but the uptick in activity wasn't enough to keep the market's rising vacancy in check.
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The vacancy rate for Atlanta-area industrial space shot up to 8.4% at the end of the first quarter, a steep increase from 5.2% during the same period in 2023, according to new data from Savills.
The wave of freshly vacant warehouse space was driven by the delivery of record levels of construction throughout the past year. Developers finished nearly 6M SF of new warehouses in Metro Atlanta in Q1 and were still underway on 19.8M SF, according to Savills.
“That’s going to be the biggest thing that affects the numbers going forward,” said Cori Nuttal, a principal with Lee & Associates in Atlanta.
But activity is also rising. Tenants absorbed 1.7M SF between January and March, according to Savills, a more than 250% increase in absorption from Q4 and a 1.3M SF increase year-over-year. The largest deal of the year so far was signed by Qcells, a solar panel manufacturer that leased 830K SF at the 1.2M SF 1380 Cass-White Road distribution facility owned by MDH Partners, Bisnow previously reported.
While new supply is outstripping leasing demand, developers haven't been able to start as many new projects in the era of higher-for-longer interest rates, NAI Brannen Goddard Senior Vice President Charlie Adams said. The cost of construction and materials makes it hard for developers to justify new projects. Even if a project can be rationalized, finding land affordable enough to make it work is difficult, Adams said.
“We’ve talked to developers who looked at deals and said the land basis needed to be negative for it to make sense,” he said.
Adams said Q1 activity in Metro Atlanta picked up particularly among third-party logistics operators seeking warehouse space in response to new contracts.
The thaw in what had been a frozen leasing market is being driven largely by the Federal Reserve’s lack of further rate hikes, which has given business leaders more confidence in their economic prospects for 2024, Adams said.
“People are able to quantify the downsides for the first time in a long time,” he said. “There may be one more rate hike, but that feels like the roof.”
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