Metro Atlanta Sees a Surge in Big-Box Industrial Leases
Metro Atlanta is buzzing with excitement as big-box industrial tenants are finally starting to emerge from their sabbatical. After witnessing a lull since 2022, the market is beginning to show signs of life, with significant deals taking center stage. Notably, an undisclosed company has leased over 1 million square feet in a master-planned distribution campus called The Cubes at River Park, while Target has confidently moved into a colossal 1.4 million square feet distribution facility located in Henry County.
Positive Signs Amidst Caution
According to the third quarter’s industrial report from CBRE, these two deals were responsible for a large portion of the overall absorption rate in the region, which totaled an impressive 3.3 million square feet. After a period dominated by small tenants, it’s evident that corporate interest in large-scale warehouses, sometimes larger than your average shopping mall, is beginning to resurface. In fact, companies have absorbed more than 9 million square feet so far this year.
However, it’s important to note that not everyone is popping the champagne just yet. Mike Demperio, Executive Vice President at CRG Real Estate, expressed some caution, stating, “We haven’t had a million-square-footer done in a year and a half. For a major market, that’s not good. Doing one deal does not signal the market is back. There’s still a lot of empty buildings.” Demperio confirmed that the unnamed tenant who leased the 1 million square feet is located at The Cubes at River Park, but he didn’t disclose their identity.
Leasing Activity on the Rise
The quarterly data reveals an interesting trend: companies inked 14.6 million square feet in leases during the third quarter, marking the highest leasing activity since 2022. While the number of deals fell by 19% compared to the second quarter, larger leases exceeding 100,000 square feet shot up by an amazing 87%. Scott Amoson, CBRE’s Associate Research Director, commented, “That million-square-footer is hopefully a sign of those [big-box] deals getting signed. Those bigger tenants are getting more comfortable signing deals.”
A Glut of Space and Rising Vacancy Rates
Historically, large warehouse leases had become a rare sight in Metro Atlanta. This unfortunate trend emerged as companies shifted away from the rapid expansion of their logistics networks following the pandemic. The direct vacancy rate hit an all-time low of 3.4% at the end of 2021, prompting developers to kick things into high gear. At one point last year, there was a staggering 39 million square feet of new warehouse construction occurring in the metro area, much of it without tenants locked in.
However, that oversupply contributed to a rise in the vacancy rate, which reached 8.2% in the third quarter, reflecting the challenges posed by the surplus of available spaces, according to CBRE. Additionally, the combined weight of rising interest rates and outstanding commercial real estate loans has forced many developers to ease up on new projects, culminating in only 11.8 million square feet under construction by the end of the third quarter—the lowest in nine years.
Looking Ahead: Optimism with Caution
Stan Conway, a former executive vice president with Majestic Realty, points to these two significant leases as a possible indication that the market is slowly rebounding, particularly with more speculative building underway. Still, he cautions that much of this activity is likely due to pent-up demand, as companies previously hesitated on large investments amid high interest rates. “This dip in rates and a little more certainty to the economic trajectory is easing things, but I don’t think it’s foreshadowing a big rally,” he remarked.
Scott Amoson added that if leasing activity remains strong through the end of this year and into next, we might see a notable shift in the vacancy rate. Since developers are not currently launching many new projects, there could be a notable space crunch around mid-next year, giving landlords more leverage. “Developers still aren’t making any money to speak of because of the profit spread. I’m obviously optimistic. In my business, you have to be. But we still have a ways to go,” said Demperio, calling for more deals to stabilize the industry instead of merely treading water.
In a nutshell, while the big-box industrial market in Metro Atlanta shows promising signs of recovery, the industry remains cautiously optimistic. It’ll be interesting to watch how things unfold in the coming months!
