Industrial Market in Atlanta Faces Increasing Vacancy Rates

Industrial Market in Atlanta Faces Increasing Vacancy Rates

This week, Atlanta’s industrial market began to feel the pinch as demand for warehouse space has significantly declined. The cessation of operations by online meal kit company, Hello Fresh, at its distribution center, underscores the ongoing issue. A pronounced contraction in the market has pushed the industrial real estate vacancy to its highest point in a decade.

Alarming Vacancy Rate

According to a recent report by global real estate service provider Savills, the industrial vacancy rate surged to a staggering 9% by the end of June, up from 5.5% just a year ago. The accumulated 63.5M SF of available warehouse and distribution center space represents the highest vacancy rate since Savills began tracking industrial vacancy rates in Atlanta in 2018.

Comparatively, the last data from CoStar showed a vacancy rate above 9% only back in 2014.

Warehouse Space Oversupply

The industrial market, which enjoyed a prosperous few years with businesses scrambling to occupy warehouse spaces, is witnessing a slump. This downward trend began last year with increased warehouse construction and cooling interest rates. The surplus of available spaces has been further exacerbated by major closures and layoffs by large companies. Firms including DHL, Commercial vehicle equipment maker ZF Active Safety, Swissport Cargo Services, linen manufacturer 1888 Mills, and FedEx Supply Chain have all initiated major lay-offs.

As the oversupply continues to hang over the market, the Atlanta industrial area has seen a considerable drop in tenant demand. Data from the second quarter shows an absorption of just 300K SF for the entire metro area, a significant drop from the 4.5M SF in the same period last year.

Forecast for the Industrial Market

Despite this slowdown, industry insiders predict an imminent improvement. Although the current vacancy rate could be alarming, market players remain hopeful of an upward correction by year-end. Company forecasts may adjust to the glut of available warehouses, and potentially, changed circumstances may spur industrial leasing. An expected cut in the interest rate by the Federal Reserve this year could also contribute to this recovery.

Locally, recent signs point to a positive shift. As active leasing contracts on the uptick, the tenant inactivity that marked the previous quarters shows signs of reduction. This renewed activity comes at a critical time for the market, which has numerous construction projects in the pipeline.

Even though the current outlook seems bleak for Atlanta’s industrial market, with persisting uncertainty and a downturn in tenant activity, the prediction of a recovery might present a silver lining for stakeholders.