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Atlanta's Warehouses Have Become 'The Belle Of The Ball' For Wall Street Giants

Investment into Metro Atlanta's industrial market has gone into overdrive, and there is no better piece of evidence than the sheer amount of money flowing through warehouses in the area.

Roughly $5.4B worth of industrial properties centers traded hands in 2021 in the region, according to data compiled by Colliers Atlanta, more than twice the previous volume record of $2.69B, set in 2019.

Investors are 'paying up for everything' when it comes to industrial properties, CBRE Vice Chairman Chris Riley said.

The surge in demand and lack of enough properties to satisfy it has driven values skyward: Metro Atlanta's industrial properties sold for a record average of $89.18 per SF last year. The price of industrial space has nearly doubled over the past five years — in 2016, properties traded at an average of $48.47 per SF.

“I've never experienced in my career a better landscape for operating fundamentals, which has translated to the highest demand from investors and pricing,” said CBRE Vice Chairman Chris Riley, who has been an industrial investment broker since 1987. “It's nice to be in a sector that is the belle of the ball.”

James Pitts, a principal with Greenwood Commercial Real Estate Group in Atlanta, was scouting properties for a client looking to buy Atlanta industrial, and he came upon a 50K SF warehouse north of Atlanta that had delivered just two days earlier.

But he was 48 hours too late. By then, Pitts said, the builder already was in agreement to sell to one buyer and had four others on backup in case that one fell through.

“[The developer] literally laughed at me and said, 'Good luck finding something up this way,” Pitts said.

Such is the current climate in Atlanta's industrial market, whose fundamentals are inviting to new, large players who are shelling out previously unheard-of sums for warehouses and distribution centers.

Industrial investment sales are doubling what traded in 2020, according to data provided by Colliers Atlanta.

In 2021, the region's industrial market saw more than 42M SF of net new absorption, eclipsing the previous record of 25.9M SF in 2017. Warehouse rents have risen from $3.40 per SF in 2021 to more than $5.30 per SF at the end of 2021, according to Marcus & Millichap.

That growth has attracted the biggest names on Wall Street to properties that were once afterthoughts. Goldman Sachs made the largest single industrial asset purchase in Atlanta last year, paying $134M in August for a nearly 1M SF Kraft Heinz warehouse in Union City from Blackstone, which had purchased it six months earlier for $109.8M, the Atlanta Business Chronicle reported

Private equity giant KKR purchased two 1M SF warehouses for over $100M each: Palmetto Logistics Center in Coweta County from Artemis Real Estate Partners and PNK Park Southern Gateway in McDonough for $103M from PKN Group

More recently, Brookfield purchased 550 Rock Hill Drive, a 180K SF distribution center in the Hartsfield-Jackson Atlanta International Airport submarket from Chicago-based Dayton Street Partners. While the price was undisclosed, a source familiar with the transaction said it sold for $19.5M, or $108 per SF. 

Buyers have been hungry for industrial real estate since before the pandemic, but widespread adoption of online shopping and supply chain disruptions have led to a nationwide crunch for distribution space.

Industrial property sales hit a high watermark in 2019 at $118B across the U.S., according to Real Capital Analytics. That moderated some to a little more than $100B in 2020 because of the pandemic, but capital has come roaring back into the industrial sector, pushing prices well above pre-Covid levels.

“It's very much a traders' market,” said Riley, who added that his national industrial brokerage team at CBRE tallied a record year in 2021 with $32B in sales. “[Investors] are paying up for everything.” 

Institutional and global buyers have expanded their geographic nets when searching to buy industrial properties. Before Covid, they would focus on buying warehouses in the top 30 markets in the U.S., Riley said, but today that number has doubled.

“There's a lot of money chasing deals, and industrial is a preferred asset class, for sure,” Marcus & Millichap First Vice President John Leonard said. “That's the market.”

All of the competitors in the market have put the squeeze on cap rates, which have a marketwide average of 6.7%, but the strongest Atlanta properties are selling for cap rates below 3%, according to Marcus & Millichap.

“Appreciation is off the charts. You can do nothing to a property, cap rate compression is providing additional equity with not a lot of improvements,” Leonard said. “If you're thinking about selling something in the next two to five years, I don't know why you would wait.”

Despite some 43M SF of new construction underway — nearly twice the amount of space delivered in Metro Atlanta in 2021 — few are projecting price growth to fall back to historical norms.

While the investment demand for industrial space has developers and owners celebrating, Pitts said it has made it difficult for companies to find real estate at reasonable prices if they want to buy their own facilities. Many smaller companies are getting outbid by investors with deeper pockets.

“We have some smaller clients who want smaller industrial spaces closer into the city. But everything that says industrial is expensive right now,” Pitts said. “I don't think it makes sense to purchase right now. I think you should lease and wait.”