News Summary
The speculative industrial space in Atlanta has reached its lowest level in ten years, with rising vacancies and developer caution caused by high interest rates. Despite this downturn, demand for industrial space in Atlanta has improved slightly, with leasing activity increasing by nearly 15% in 2024. Developers are focusing on preleased properties, particularly in manufacturing and data centers, showing resilience amid market challenges. The hope for a rebound in 2025 exists as economic factors may ease, suggesting opportunity ahead for investors.
Atlanta’s Speculative Industrial Space Hits Lowest Level in a Decade Amid Rising Vacancies and Caution from Developers
The industrial landscape in Atlanta is experiencing a significant transformation, as the amount of speculative industrial space reaches its lowest level in a decade. This decline is primarily attributed to a combination of elevated interest rates and a rising number of vacancies, prompting developers to exercise increased caution when engaging in new projects.
Current Market Trends
In the face of these challenges, there has been a noticeable shift toward preleased properties in the pipeline. As developers navigate these uncertain waters, a greater focus on manufacturing space and data centers is emerging, moving away from the traditional reliance on warehousing and logistics. Notably, the development of manufacturing facilities has seen a remarkable tripling since 2021.
Vacancy Rates on the Rise
The national average vacancy rate for the industrial sector now stands at 8%, a stark contrast to the 4% or lower figures recorded two years ago. Markets that once enjoyed record-low vacancies are now aligning closer to the national average, reflecting a broader industry trend.
However, despite the overall slowdown, demand for industrial space in Atlanta showed signs of improvement in 2024, with leasing activity increasing by nearly 15%. This uptick is indicative of a market that is adapting to the changing landscape.
Developments and Deliveries
In terms of annual net absorption, Atlanta experienced a significant boost, nearly doubling from 2023 to 2024. This year marked the third-highest annual total for new deliveries of industrial space in the region, with new construction numbers totaling 16.3 million square feet, bearing a striking decline from the 36.3 million square feet achieved in 2023.
Availability and Subleasing
As of now, the availability rate of industrial space in Atlanta has increased to 13.1%, up from 11% just a year ago. There are currently over 121.6 million square feet of industrial space available for lease in the Atlanta area, and the amount of available sublease space has surged by 13.2% year-over-year.
Challenges Ahead
The Atlanta industrial market has faced considerable pressure, having recorded four consecutive quarters of negative net absorption, totaling 8.8 million square feet in the past year. Large-scale transactions, particularly big-box deals, have dramatically slowed down, with only nine transactions of 500,000 square feet or larger occurring in the last four quarters.
National Context
On a broader scale, the average in-place rents for industrial space across the nation were reported at $8.30 per square foot at the end of 2024. Some markets, like Orange County, Los Angeles, and the Bay Area, command significantly higher rents. Conversely, Kansas City, Mo., saw the slowest rent growth at just 2%.
Regional Highlights
Despite the overarching trend of negative absorption, three submarkets in Atlanta — I-75 Northwest, I-85 Northeast, and I-20 East — managed to record positive net absorption, showcasing pockets of resilience within the market.
Looking Forward
The slowdown in new construction and activity in the Atlanta industrial sector has primarily been linked to rising interest rates and an overall economic slowdown. Additionally, there exists a discernible disconnect between what purchasers are willing to pay and seller expectations, largely due to unfavorable investor debt scenarios.
With economic factors such as inflation, higher energy costs, and the impending election cycle continuing to pose uncertainties, the outlook for the Atlanta industrial market suggests a potential bounce-back in 2025. Prospective decreases in interest rates could provide a necessary boost for developers and investors to re-enter an evolving market.
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Additional Resources
- CoStar: Atlanta’s Speculative Industrial Construction Hits Lowest Point in a Decade
- Colliers: Atlanta Industrial Market Report 2024 Q4
- JLL: 169K SF Industrial Facility in Metro Atlanta Trades Hands
- Wikipedia: Industrial Real Estate
- Google Search: Atlanta Industrial Market
