Driven by the e-commerce and distribution business boom, Atlanta’s industrial real estate sector finished 2017 with its best performance in a more than a decade, and experts are bullish on 2018. The 2017 vacancy rate fell to a 10-year low of 7.4%, while annual net absorption climbed to a 10-year high of 18.7 million square feet. Rent growth also rose sharply, led by a 48.1% increase for general industrial properties since 2007. The average asking rent across all property types reached $4.83/SF on a triple-net basis, the highest level in 15 years.

The 2017 vacancy rate fell to a 10-year low of 7.4%, while annual net absorption climbed to a 10-year high of 18.7 million square feet.

The vacancy rate decline over the past two years was driven by the North Central/GA 400 Corridor and Northwest/I-75 Corridor submarkets, which saw vacancy rate declines of 140 and 120 basis points, respectively. The vacancy rate for the region’s largest submarket, Airport/South Atlanta, declined 40 basis points during this period.

Net absorption for the fourth quarter was 2.5 million square feet, the lowest quarterly total of 2017 but higher than one year ago. Large move ins for the quarter included: Travel Pro into 295,000 square feet in Airport/South Atlanta; Shake N Go into 264,000 square feet in the Northeast/I-85 Corridor; and Integrated Supply Network into 226,000 square feet in the Northeast/I-85 Corridor. Green Mountain Coffee closed its 617,000-square-foot operation in Fulton Industrial/I-20W for the largest space returned to the market during the quarter. The Northeast/I-85 Corridor and Chamblee/Doraville/Norcross accounted for 64% of the quarter’s absorption. For the year, however, Airport/South Atlanta had over half of the net absorption and growth in the market.

Warehouse Market Strong

With warehouse demand totaling 11.7 million square feet in 2017, the market marked its fifth consecutive year of net absorption over 10 million square feet. The warehouse vacancy rate has improved steadily since peaking at 16.1% in 2010, despite the subsequent delivery of more than 46 million square feet. 2017 closed with vacancy at 7.6%, while the average warehouse asking rate stood at $4.18/SF, which was up 8.6% from 2016 and 13.6% over the past 10 years.

Over $1.5 Billion Invested in Warehouses in 2017

Investors committed nearly $1.5 billion to Atlanta’s warehouse market in 2017, the fourth consecutive year with over $1.0 billion in volume. This comprised 68.1% of the $2.2 billion invested in the Atlanta industrial market for the year. Although this was down from the peak of $2.2 billion invested in 2015, it was the third-highest total since the recession. The last time Atlanta saw sustained industrial investment over $1.0 billion was 2005-07.

Top Leases Reflect Growth

More than 20 leases were signed during 2017 for over 200,000 square feet, including three deals each over 1.0 million square feet. Over 70% of those transactions occurred in the Airport/South Atlanta submarket. Half of all of the larger leases that were signed represented new-to-market tenants, further evidence of the strength in the marketplace.

Development Pipeline Remains Active

In 2017, 43 new buildings added 16.4 million square feet (2.6%) to Atlanta’s industrial inventory. These properties, which were evenly split between general industrial and warehouse/distribution, were 41.2% preleased at delivery. Only 2.2 million square feet was completed in the fourth quarter, as many projects were pushed back to early 2018. Over three-quarters of the new space was concentrated in the Airport/South

Atlanta and Northeast/I-85 Corridor submarkets.

With approximately 19.0 million square feet still under development, Atlanta will see the largest amount of industrial space delivered in over a decade. Only six of these 37 properties have any pre-leasing, but the market has shown an appetite for new space. Almost two-thirds of the projects are warehouse/distribution properties with an average size of 573,000 square feet. The delivery pipeline is concentrated in three submarkets, Airport/South Atlanta, Fulton Industrial/I-20W and Northeast/I-85 Corridor, with 95.5% of the space under construction.

Market Outlook

Overall sentiment on the Atlanta industrial market is bullish. New developments are likely to fall off after their rapid pace of the past three years. Even so, they will remain above average because of the extensive access to interstates, airports, railways and consumers that the city provides. As available land for new development pushes construction further from I-285, tenants will be more likely to absorb existing product.

Expansion at the Georgia ports of Savannah and Brunswick will also create needs in the Atlanta market, especially around Hartsfield-Jackson Atlanta International Airport.

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