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Rampant Industrial Demand Will Keep Atlanta Developers Building

Industrial developers in Atlanta are pouring the foundations on nearly 20M SF of new warehouses thanks in part to a projected 10% growth of online retail sales.

Pattillo Industrial Real Estate CEO Larry Callahan

Coming off a banner year for industrial real estate — when landlords saw more than 20M SF leased up by companies — developers are underway with another 17M SF of development so far, and are eyeing up to another 4M SF, according to Colliers International data.

The net absorption record last year shattered the previous record of 16M SF set in 2014, according to a recent Cushman & Wakefield report.

“I don't think we're going to slow down,” King Industrial Realty President Sim Doughtie said. “We're either going to go into extra innings, or it's a double-header.”

Pattillo Industrial Real Estate CEO Larry Callahan said the robust demand among tenants is in large part due to the scramble to improve product delivery by retailers to consumers, in some cases within 24 hours.

“Now what you're seeing [is] the push to restructure supply chains,” he said. “That's the shift that's part of the momentum right now.”

To that end, Pattilllo has broken ground on a 300K SF speculative warehouse in Coweta County, some 40 miles south of Atlanta. While Pattillo is moving forward without a tenant in tow, Callahan said there is enough activity in the market wanting smaller, but modern, distribution space that the firm is confident with its bet.

Unlike in past years, when giant, sprawling distribution centers were all the rage, many logistical firms and retailers are now angling for smaller facilities to enhance supply-chain networks, Callahan said.

Industrial development in Atlanta will remain at historically high levels in 2018, according to Cushman & Wakefield

Since 2014, developers added 50M SF of warehouses in Atlanta. Despite the supply influx, vacancy rates in Metro Atlanta shrank slightly during that period, from 7.9% to 7.7%, indicating that tenant demand was just as rabid as developers' desire to build, according to Cushman & Wakefield.

“A growing economy makes this possible,” Cushman & Wakefield officials said in the report.

With the state's gross domestic product expected to exceed 3% this year, officials see continued expansion among industrial tenants, fueled in part by e-commerce growth. According to the National Retail Federation, 2018 retail sales growth is expected to top 4% over 2017. But online and other non-store sales could grow by as much as 12%, excluding automobiles, gas station and restaurant sales. Retail sales in 2017 were more than $3.5 trillion, according to the NRF.

That growth continues to add fuel to tenant demand. Colliers International is tracking about 7M SF of potential industrial leases in the first quarter of this year, the firm's research director, Scott Amoson, said.

Developers continue to plan for new warehouses in Metro Atlanta as well, including Indianapolis-based Scannell Properties, which is eyeing a two-building, 2M SF project in Locust Grove. Atlanta-based Ridgeline Property Group is planning a more-than-700K SF facility in McDonough and Wood Commerce Group filed plans for a 1.3M SF facility in Commerce, Georgia, according to development of regional impact filings with the Georgia Department of Community Affairs. The agency evaluates developments that could have a regional impact on infrastructure.

Ackerman & Co. Senior Vice President Brett Buckner

Ackerman & Co. is among developers also building speculatively in Atlanta. The firm is planning to pour the foundation on two warehouses totaling more than 300K SF fronting Interstate 20 in Conyers, which will deliver in early 2019. Called the Rockdale Technology Center, the property is adjacent to a CSX rail line.

“It's extremely tight in that Rockdale/Covington submarket for a product like this,” Ackerman Senior Vice President Brett Buckner said.

Callahan said there is a continual push by retailers and logistical firms to deliver faster to the customer while avoiding inventory gathering dust in distribution centers. And that will add fuel to Atlanta's hot industrial market.

“I would argue that we're still in the early stages of a transformation that will go on for years and years,” he said. “Do I think industrial can keep moving forward even during a recession? It has drivers behind it that will tend to keep pushing forward even during a recession.”