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Atlanta Retail Landlords See Strengthening Fundamentals

Something funny happened on the way to Atlanta's retail apocalypse. The vacancy rate in Metro Atlanta is now at the lowest level since before the Great Recession.

Buckhead OVME
The Exchange, a retail redevelopment in Buckhead, home to the flagship OVME

Atlanta's retail real estate market has defied the drumbeat of national retailer bankruptcies and closings and continued to shore up empty space during the year. More than 2.6M SF of retail space was absorbed by tenants during the year, with leasing activity well over 1M SF each quarter since 2008 — when the market fell apart thanks to the credit crunch, according to a recent Colliers International report. That has helped push vacancy rates to 7.6%, the lowest level since 2005, Colliers officials said.

This is despite a continued onslaught of retail bankruptcies that have some operators shuttering locations across the nation, including Atlanta. Most recently, Toys R Us announced it plans to shutter up to eight locations locally.

But even emptied anchor spaces from retailers like Toys R Us and Sports Authority are finding life with new retailers, Colliers International Atlanta Senior Vice President Tosh Wolfe said. Wolfe is representing a landlord with a closing Babies R Us.

“And we got multiple parties interested in back-filling that space,” he said.

Absorption deliveries vacancy rate
Retail landlord vacancy rates continued to shrink through 2017 in Atlanta

Atlanta's retail health can be credited in large part to the region's growth since the Great Recession when one in every 10 jobs vanished, The Atlanta Journal-Constitution recently reported. Since then, companies have added back all those lost jobs and piled on nearly 300,000 more, helping push the unemployment rate to 4.1% at the end of last year, according to the Bureau of Labor Statistics. Experts predict another solid year of job growth as well, with more than 50,000 jobs added to the economy, according to the AJC.

More jobs mean more people with income to spend. But when it comes to brick-and-mortar retail, the focus on shopping has been less about stuff and more about experiences.

FCA Partners principal Win Kelly said Atlanta's population growth has much to do with the health of retail real estate, as well as the lack of new retail development this cycle.

“When you take away retail space and add population, that helps supply-and-demand fundamentals,” Kelly said. “I think the tenants are just looking for good space that is well-located and near a customer they're trying to reach.”

FCA owns more than 1M SF of retail in its portfolio, including The Exchange in Buckhead and Parkway Pointe, a 200K SF suburban shopping center in Cumberland/Galleria that is home to an AMC theater and a Main Event bowling and entertainment facility. While two different markets and two different retail bases, Kelly said both still have tenants that focus on customer experiences.

A focus on experience has helped growth in restaurants and fitness and wellness retail concepts, Wolfe said. 

“We're seeing local concepts and regional concepts that are expanding. We're seeing regional concepts that have become national concepts,” he said.

Dr. Mark McKenna, founder and CEO of Atlanta-based OVME medical spas

One of those riding the wave of health and wellness is Dr. Mark McKenna, who is about to open OVME Aesthetics, a luxury medical spa that offers a list of cosmetic procedures and light surgery such as Botox, medical-grade facials and DNA-focused diets. OVME is opening in March at The Exchange shopping center in Buckhead with its first-ever location. But with a financial investment from the private equity fund Equity38, OVME plans a national rollout of locations across the U.S., with up to 10 initial locations within the next three years, McKenna said.

“We just signed our first [letter of intent] on a space outside Atlanta,” he said.

Unlike other retailers, McKenna said most cities will be home to only one OVME. It is using an app, debuting in April, that will allow customers to book some services, such as Botox, at their home with an OVME medical professional. That will keep the chain's overall brick-and-mortar footprint manageable, McKenna said.

“We don't want to do multiple brick-and-mortar locations in the same city,” he said.

In retail today, those who are unable to adopt an online strategy while maintaining a brick-and-mortar base are struggling.

“And then there are others who haven't reinvented themselves enough. We're seeing a culling of those concepts,” Wolfe said.

New Market Properties CEO Joel Murphy recently echoed those sentiments with Bisnow.

“If [the retailers] sell perishable items, the quality of which means something to their customers, and they are investing capital in online capabilities, or if they are healthcare, fitness, service and restaurant operators whose internet-resistant businesses are convenient to their customers, then not only are they not in jeopardy, they have an enormous opportunity,” Murphy said.