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Retail Rebounds In Atlanta, But Headwinds Remain

Atlanta Retail

Atlanta's retail market shifted from despair to elation in a single quarter as retailers from April to June soaked up nearly all the square footage abandoned during the height of the coronavirus pandemic.

The leasing rebound is indicative of Metro Atlanta's burgeoning population growth and strong economy coming out of the pandemic-induced recession, retail real estate experts told Bisnow. But many say they aren't holding their breath that the market will remain this strong throughout the rest of the year.

Shopping in the era of the coronavirus.

Retailers leased 1M SF more than they emptied — a dynamic known as positive net absorption in the commercial real estate industry — between April and June of this year, according to a report by the brokerage firm Lee & Associates. From July of 2020 to March of this year, Metro Atlanta retail landlords tallied 1.04M SF of negative net absorption, according to the report, which cites data compiled by a host of analytical firms and agencies, including CoStar, the U.S. Bureau of Economic Analysis, the U.S. Bureau of Labor Statistics, the Congressional Budget Office and its own proprietary data.

Data has not been released yet to indicate how Q3 is going, but retail professionals say they expect another strong quarter for leasing.

“Retail leasing in the city of Atlanta is the best that I have seen in my career,” Skyline Seven Real Estate partner Ryan Holzer said. “Leasing activity is crazy right now, absolutely robust. But it's probably not sustainable. There's not a lot of construction in the pipeline, so it won't last.”

New retail construction has been tempered since 2018. Developers have 2M SF of retail space underway, up from 1.7M SF a year before, according to Lee & Associates. But that new supply is a blip against Metro Atlanta's total retail inventory of 361.5M SF.

Some of the new construction has already been pre-leased by tenants.

Among the largest retail deals in the second quarter are Floor & Decor's 78K SF lease and Academy Sports + Outdoors' 58K SF lease at the newly developed Salem Gate Shopping Center in Conyers, Urban Air Adventure Park's 40K SF lease at The Plaza Mall of Georgia, Lowe's Home Improvement's 35K SF lease at Shoppes at Morrow Station and the nearly 30K SF lease for the Salvation Army at Brannon Square Shopping Center in Roswell, according to Colliers, citing CoStar data.

“I think it's going to continue to go back positive. You see consumers are ready to go out in everyday normal lives,” said Willie Candler, the Lee & Associates' research associate who authored the report.

Candler said many retailers took advantage of the pressure landlords felt during the pandemic to keep tenants in their space. While that did not directly affect the rental rates in the metro area — triple net retail rents actually rose nearly a dollar from $17.66 per SF to $18.47 per SF year-over-year in the second quarter — Candler said landlords were willing to parcel out free rent and other incentives.

“I think landlords were willing to play ball a little more,” he said.

Skyline Seven's Ryan Holzer

Coro Realty Advisors President Robert Fransen said the second-quarter absorption number was a correction to the pain of the pandemic.

“Retail real estate is hot again, but I am reluctant to extrapolate the last three months as the new normal,” Fransen wrote in an email to Bisnow. Coro Realty owns and manages a number of retail centers around the metro area, including Buckhead Pavilion and Buckhead Place and Park Place Shopping Center in Dunwoody.

Some retailers are taking advantage of second-generation retail space that doesn't require a lot of capital to spruce up, Fransen said.

“The ones who went out of business left what was, in many cases, attractive second-generation space … [that] entails fewer tenant improvements to be funded by the landlord, enabling a landlord to charge a lower rent,” Fransen said.

Retailers have benefited from a number of tailwinds in the Southeast as well, reopening from pandemic closures sooner than the rest of the nation, growing numbers of residents and jobs, and the infusion of federal stimulus dollars coupled with consumers willing to spend the money.

Forty-eight percent of consumers between the ages of 18 and 34 have spent more money this year than in 2020, along with 34% of people aged 35 to 54, according to a 2021 survey of nearly 500 U.S. consumers by the research firm Clutch. Millennials were driven to spend more because of easing pandemic restrictions “and a sense of making up for lost time,” Clutch Editor Anna Peck said in the report.

“Retail is absorbing that in Atlanta because there is a lot more demand,” Franklin Street Senior Associate Jessica Branch said. “People are fleeing cities like New York and Chicago.”

Holzer said he has assisted a number of retailers in opening new locations in Metro Atlanta that are part of larger growth strategies here, including a new Crunch Fitness location in Hiram, a new Rooms To Go Patio concept in Alpharetta, Hispanic restaurant chain Taipa Supermercado in Peachtree Corners and a new concept from Dollar General called pOpshelf that opened one location each in Cumming and McDonough.

Chicken Salad Chick, a chain of chicken salad sandwich eateries with 216 locations in 17 states, plans to open 50 restaurants in 2022 with a goal of 500 restaurants in the U.S. by 2025, CEO Scott Deviney told Bisnow in an email. But there are headwinds to growth, both in the availability of retail spaces and in the hunt for workers to staff locations.

“Atlanta is similar to many areas in which we are seeking new restaurant space with limited existing space and steady to increasing rental rates,” Deviney said. “Today, the environment is a little more challenging because we aren't competing with just restaurant companies. Rather, we are competing against many more employers for the same employees.”

Holzer said he hears similar complaints from his retail clients.

“Every other week, [executives] say, 'Gosh, I'd be opening more stores if I could staff them,'” Holzer said. “But I also think there's confidence that the labor issue will get better here soon.”

Lee & Associates' Candler said in the report he remains positive about the rest of 2021 in terms of retail absorption. And a few other experts echo that sentiment. And so far in the third quarter, retailers absorbed nearly 700K SF, according to Colliers.

“I expect Q3 and Q4 absorption to slow down versus Q2, but there is still demand for space,” Fransen said in an email. “Plus, most of the shakeout has already occurred. I do not foresee retailers giving back significantly more space. The ones that were going to fold already did.”

Bull Realty's retail group Vice President Preston Blair said while leasing is strong, he's more concerned about the long-term health of Atlanta's retail market.

“I still have uncertainty about the future. Just like the housing market, things are going to drop,” Blair said. “Inside, I feel there's still reason to be scared.”