on point Atlanta . Industrial Outlook . Q3 2012 Modest market activity for Atlanta’s third quarter This quarter’s consistent warehouse fundamentals work together to offer investors and landlords a foundation to build on. Positive net absorption and declining vacancy rates have been the norm since mid 2010. Atlanta’s industrial real estate is gaining increasing attention from the investment community as an affordable and viable second-tier alternative to overheated gateway markets.
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on point Atlanta . Industrial Outlook . Q3 2012
Modest market activity for
Atlanta’s third quarter
This quarter’s consistent warehouse fundamentals work together to offer
investors and landlords a foundation to build on. Positive net absorption
and declining vacancy rates have been the norm since mid 2010.
Atlanta’s industrial real estate is gaining increasing attention from the
investment community as an affordable and viable second-tier alternative
to overheated gateway markets.
Jones Lang LaSalle • On Point • Atlanta Industrial Outlook • Q3 2012 3
Demand for warehouse space, the industrial classification which makes up 86.4 percent of Atlanta’s
inventory by square feet, showed its tenth quarter of positive net absorption. Likewise, and due
primarily to historically low levels of new deliveries, vacancy rates have decreased for nine
consecutive quarters since their mid-2010 high. This further solidifies the market’s transition
through the nascent phases of recovery. Although below historic averages, the reliability of these
figures lends confidence to landlords and investors alike.
Tenants in the market for metro-wide space are finding fewer options to choose from. Limited
opportunities are available for occupiers requiring both modern building design and more than
250,000 square feet. Availabilities in the Northeast submarket could disappear quickly if many of
the known requirements are executed. These currently total 4.6 million square feet.
In contrast to these gains seen for warehouse space, manufacturing and flex-oriented property
trends remain challenged. Vacancy rates are increasing and significant net absorption has not been
seen year-to-date. Manufacturing, representing 13.6 percent of the total industrial market by square
feet, has seen much of its space become functionally obsolete relative to today’s operations. In
many cases, investments in redevelopment and remediation cannot be justified over build-to-suit
options. Companies have chosen to construct their own facilities, including Mitsubishi Electric’s
559,407-square-foot building on Satellite Boulevard.
Atlanta industrial overview
Total industrial market (owner occupied included)
Supply Construction Vacancy Availability Demand Pricing
Total stock (s.f.) Under construction (s.f.) Rate Trend Rate Trend Q3 2012 net absorption (s.f.) Average rental rate (nnn)
Total industrial market 499,961,756 4,426,799 12.7% 18.5% 2,376,913 $3.02
Total flex market 34,947,789 0 20.0% 24.2% -3,831 $7.81
Trend spotlight… • Big box vacancy, 250,000 square feet and greater, has dropped below seven-year historic
averages metro-wide. The Northeast, Airport/South I-85, and South I-75 submarkets are most
ripe for future supply.
Economy
Third quarter economic activity offers a positive outlook going into the final months of 2012. Metro
Atlanta’s unemployment rates continue their decline to 8.8 percent in August which is down from
9.7 percent a year prior. The state’s drop in unemployment mirrors this progress, currently at 9.0
percent and down from 9.8 percent the same time last year, although greater than the nation’s
average of 7.8 percent. Atlanta saw a modest increase in average home sale prices since June,
moving up by 2.6 percent over the four-month period. This is stronger than the average increases of
many other major U.S. cities. Stability of this particular sector is an important factor in Atlanta’s
progress through the recovery and is key to the success of metro industrial activity.
Movement of goods through the city also has an impact on local real estate market performance.
Port related imports have been increasing. The Georgia Ports Authority recently logged 779,901
twenty-foot equivalent units (TEUs) year-to-date, the standard measurement of a port’s
containerized cargo volume. This represents a 2.1 percent gain over 2011’s volume over the same
period. Georgia’s ports, which feed directly into Atlanta, ranked fourth overall when compared
against all other U.S. ports in Jones Lang LaSalle’s annual Seaport Index Score. Taking into
consideration both terminal statistics and the port-centric industrial real estate market, Georgia’s
ports scored higher than neighboring Port of Charleston (10th) and Port of Jacksonville (12th).
Atlanta’s Hartsfield-Jackson International Airport also contributes significantly to metro cargo flow,
heavily influencing demand for warehouse space in adjacent submarkets. Plans to add another
Atlanta-owned100,000-square-foot cargo transfer facility have been approved, cementing the city’s
investment in expanding the capacity.
Market conditions
As with metro economic indicators, modest gains in Atlanta’s industrial real estate fundamentals
were tracked. What stands out as significant is the consistency of these figures and where they
suggest the market could be headed.
Jones Lang LaSalle • On Point • Atlanta Industrial Outlook • Q3 2012 4
Atlanta industrial overview, cont.
Outlook
Overall, Atlanta’s industrial market position will likely progress along the real estate cycle
throughout the remainder of the year and into 2013. Velocity of that improvement, however,
depends heavily upon consumer’s perception of our post-election economic and political
environment. We expect the market will continue to tighten if positive demand for warehouse space
continues on its current trajectory, offering occupiers fewer options and less influence at the
negotiating table. The Northeast and Airport/South I-85 submarkets especially will continue to
tighten due to their disproportionately large volume of core big box warehouse and distribution
space, which typically outperform the market as a whole.
As the market for warehouse space solidifies, affordable debt and low cost of materials are factors
that combine to lay the groundwork for future speculative construction. Build-to-suit development is
already active metro-wide with 5.3 million total square feet in planning or under construction. This
includes Home Depot’s 1.1 million-square-foot rapid deployment center in McDonough.
The distribution facility will be designed to fulfill e-commerce operations, another of several recent
highly-customized projects in Atlanta. Retrofitting the company’s Braselton facility proved cost
prohibitive. As retailers focus on minimizing supply chain outlay they are electing to upgrade and
consolidate, driving demand for modern space. The next wave of speculative construction is likely to
accommodate unique design elements such as expanded employee parking, sort mezzanine space,
larger office areas, full HVAC, and greater clear heights. Another speculative industrial
announcement in the final quarter this year is probable. What is more likely, however, is that 2013
will reveal several spec projects designed to capture the next generation of occupiers.
The automotive industry in particular is expected to continue activity in the state, representing 2.2
million total square feet of known requirements for space. Georgia’s pro-business climate,
transportation infrastructure, energy prices and educated workforce are expected to earn new
opportunities from elsewhere in the U.S. and overseas. Recent investments by Subaru, Mobis and
Toyota offer momentum for future successes.
Atlanta property clock
Land
lord
leve
rage
Tenant leverage
Peaking
market
Falling
market
Rising
market
Bottoming
market
Chattahoochee, Central Atlanta
North Central, Northwest, I-20 West
I-20 East, South I-75
Airport/South I-85, Northeast
Jones Lang LaSalle • On Point • Atlanta Industrial Outlook • Q3 2012 5
Pricing trends
• Overall average asking rates remain relatively flat
• Effective rental rates are slowly rising in the more active submarkets
• Warehouse/distribution rates dropped overall since the previous quarter
• Submarkets that noticed a drop in warehouse/distribution rates include Airport/South I-85, Central Atlanta, I-20 East, North Central and the Northeast
• Metro-wide manufacturing asking rents fell by $0.15 since Q3 2011
• Quarter-over-quarter flex pricing increased again, this time by $0.18
Atlanta industrial overview, cont.
YTD net absorption
Demand trends
• Absorption figures were positive again this quarter in response to previous quarter’s leasing volume. Current activity does not seem to be quite as vibrant.
• Demand in the Northeast was driven by ‘mid box’ users rather than smaller ‘bread and butter’ tenants
• The Northeast has had 10 straight quarters of positive net absorption totaling about 5.0 million square feet
• Manufacturing demand trailed off considerably this quarter, although there are several build-to-suits in various construction phases
• South I-75 put up its fifth quarter’s worth of positive net absorption
Average rental rate
Jones Lang LaSalle • On Point • Atlanta Industrial Outlook • Q3 2012 6
Methodology…
The leased industrial sector excludes owner occupied
product from the market’s data set, and provides a rental
equivalent perspective for industrial buildings that are
leased by tenants. Buildings can move into and out of this
data set based upon being purchased or sold by a
particular user.
Recent lease transactions
Tenant name Location Submarket Deal type Size (s.f.)
Home Depot Greenwood Industrial Pkwy South I-75 BTS 1,118,508
International Paper 300 Horizon Drive Northeast New 356,000
Subaru 9000 Riverside Parkway I-20 West New 306,000
Tenants in the market
Tenant name Submarket concentration Size requirement (s.f.)
Total leased flex market 26,302,576 24.2% 28.7% 8,153 $7.67
Sector trends… • The automotive industry has recently been active in the Southeast and Georgia in
particular. Drawn by economic incentives and a favorable business climate the future is
bright for more regional activity from this sector.
• The next wave of speculative construction is likely to accommodate design elements
unique to e-commerce facilities. Expanded employee parking, sort mezzanine space,
larger office/break rooms, full HVAC, and greater clear heights will be common.
• Occupiers representing the food industry make up a significant amount of known
requirements in the state, currently representing over 1.6 million square feet.
Atlanta leased industrial market [excluding owner occupied facilities]
Jones Lang LaSalle • On Point • Atlanta Industrial Outlook • Q3 2012 7
Buyers making up the majority of these investments include corporate users, investment
management firms, and high net worth individuals. Publically traded real estate investment trusts
have emerged as net sellers. These organizations could possibly be seeking capital to sure up
balance sheets to either acquire in primary markets or fuel the next wave of speculative
construction. The chart below illustrates Atlanta’s average price per square foot rates decreasing
steadily since 2007. This is as a result of an increasingly large contingent of lower quality and
lower priced assets as a percentage of overall sales.
Atlanta’s success as a city in which to invest, open offices, or reside is entrenched in its ability to
keep and create jobs. Compared to other metros in the United States, Atlanta has faired relatively
poorly. A reigniting of the financial, manufacturing and single-family housing markets would be a
welcome sight and would likely propel the region through the recovery.
Atlanta industrial capital markets overview
Northeast 6485 Crescent Drive
RBA 360,460 s.f.
Buyer Ole Mexican Foods
Seller Weingarten Realty
Price (p.s.f.) / Cap rate $27.00 / unknown
Date sold July 2012
Northeast 2905 Pacific Drive
RBA 155,396 s.f.
Buyer SPP Pumps
Seller Nordson Corporation
Price (p.s.f.) / Cap rate $32.18 / unknown
Date sold August 2012
Atlanta select sales
Average sales price (p.s.f.) and cap rates by year (warehouse, distribution & manufacturing only)
7.0%
7.2%
7.4%
7.6%
7.8%
8.0%
8.2%
$0
$5
$10
$15
$20
$25
$30
$35
$40
2007 2008 2009 2010 2011 2012
Avg. price (p.s.f.) Cap rate
Chattahoochee Industrial 3755 Atlanta Industrial Parkway North
RBA 407,981 s.f.
Buyer STAG Atlanta
Seller Macfarlan Capital Partners
Price (p.s.f.) / Cap rate $27.70 / 8.90%
Date sold August 2012
As our trading partners around the world wrestle with increasing inflation, economic uncertainty and
political conflict, their demand for U.S. goods and services has declined. The silver lining is that our
nation’s economy is seen as relatively secure and has been drawing additional foreign investment
seeking less risk. With loose monetary policy in place, interest rates remain low, driving investment
toward higher returns found in core real estate assets. Primary industrial markets have offered
opportunities to place that capital.
Over recent periods, however, those gateway markets have experienced bidding wars that
compress cap rates and allow second-tier markets like Atlanta to become viable alternatives.
Responding to this attention, local transaction volume is elevated over previous years. Year-to-date
activity has already exceeded 2011 levels and eclipsed volumes seen in 2010 and 2009.
Jones Lang LaSalle • On Point • Atlanta Industrial Outlook • Q3 2012 8
Statistics
Large block availabilities
Construction map
Contacts
Appendix
Jones Lang LaSalle • On Point • Atlanta Industrial Outlook • Q3 2012 9
Atlanta industrial market statistics
Vacancy: Physically vacant space. Total Vacancy includes both direct and sublease space.
Availability: Space being marketed for lease by owner or sublessor, regardless of occupancy. Total Availability includes both direct and sublease space.
Net Absorption: The net change in occupancy over a measured period of time.
Average Asking Rent: Direct monthly values presented on a NNN basis, then weighted by the amount of direct available space in a building.
Statistics reflect the total industrial market, including owner occupied facilities, 30,000 s.f. and greater.
Vacancy: Physically vacant space. Total Vacancy includes both direct and sublease space.
Availability: Space being marketed for lease by owner or sublessor, regardless of occupancy. Total Availability includes both direct and sublease space.
Net Absorption: The net change in occupancy over a measured period of time.
Average Asking Rent: Direct monthly values presented on a NNN basis, then weighted by the amount of direct available space in a building.
Statistics reflect the total industrial market, including owner occupied facilities, 30,000 s.f. and greater.
Jones Lang LaSalle • On Point • Atlanta Industrial Outlook • Q3 2012 11
Vacancy: Physically vacant space. Total Vacancy includes both direct and sublease space.
Availability: Space being marketed for lease by owner or sublessor, regardless of occupancy. Total Availability includes both direct and sublease space.
Net Absorption: The net change in occupancy over a measured period of time.
Average Asking Rent: Direct monthly values presented on a NNN basis, then weighted by the amount of direct available space in a building.
Statistics reflect the total industrial market, including owner occupied facilities, 30,000 s.f. and greater.
Jones Lang LaSalle • On Point • Atlanta Industrial Outlook • Q3 2012 12
Atlanta industrial buildings with large block availabilities
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