The United States added 7.5 million jobs in May and June, which is about a third of the jobs that were lost in the previous 3 months during the initial phase of the global pandemic breakout and shutdown. Atlanta and the rest of the sunbelt metro areas outside of California have performed well in relation to the overall national job numbers. However, a rise in cases in Texas and Georgia threatens to dampen the overall optimism of quick v-shaped recovery across the South.
New York posted some of the strongest job gains in June. Orlando, on the other hand, with its reliance on a tourism economy, continues to lag behind the rest of the nation. Metro Atlanta initially lost approximately 300,000 jobs from March to April but has since added back roughly half of those jobs. The next few jobs reports should more clearly indicate the effect of the recent rise in case of numbers in Georgia upon the overall economic recovery of the state.
The rise in cases has done little to stop Atlanta’s industrial market as it is currently a leader nationwide. The multifamily market in the metro area remains strong compared to other locales, while the office and retail markets remain in precarious economic positions. Here is a closer look at each of these sectors of the Atlanta commercial real estate market.
Given the circumstances of the economic situation as a whole, Atlanta’s industrial market continues to show its muscle. With a recent flurry of activity Atlanta now ranks second nationally in the amount of industrial space currently under construction at nearly 25 million square feet, trailing only the Dallas-Fort Worth metroplex. Current leasing velocity has helped to silence the concerns of adding too much inventory to the market as almost half of the space under construction is already preleased.
Growing firms are targeting areas south of I-20 for industrial space. The southside of Atlanta should continue to see new industrial construction and move-ins due to its relatively unclogged roads, favorable zoning, and strategic location near the airport and the Port of Savannah.
Home Depot announced plans to open three new distribution centers in Georgia as part of a larger nationwide initiative to upgrade its supply chain to better meet the growing demand of online shopping. The new Georgia facilities will be located in DeKalb, Fulton and Henry counties in the Atlanta metropolitan area.
CoStar managing analyst David Kahn commented on Home Depot’s plans as part of a larger national trend for retailers. “The importance of same-day and next-day delivery continues to drive decisions by major distributors throughout the country, and we’ve seen companies such as Home Depot expand to new, highly-efficient facilities throughout the country in order to better service their brick and mortar footprints,” Kahn said. “While e-commerce and same-day and next-day delivery is often focused on business-to-consumer operations, for Home Depot in particular, this is important for their business-to-business operations, too.”
Atlanta’s multifamily recovery is among the leaders of cities across the nation. Atlanta rents fell during the early months of the pandemic but have come surging back as of late. Atlanta joins Portland and Philadelphia as the only three major US cities whose rents are above pre-coronavirus levels. Although this appears to be a positive trend in comparison to the rest of the country, it is still close to nil in rent growth for year over year marks, having missed on the usual surge in springtime demand for apartments.
There is growing concern that the rapid rent recovery is not a sustainable trend amongst the recent rise in case levels in Georgia and as temporary jobs losses increasingly appear to be long-term in nature. Continued rent growth will undoubtedly be tied to the effectiveness of the government’s public health response and economic recovery stimulus packages, specifically regarding enhanced unemployment benefits.
Another trend worth noting since the pandemic hit is that renters in the Atlanta area have seemingly shifted the demand towards more affordable suburban locations. Cherokee County, Clayton County, Southeast DeKalb, Westside Atlanta and South Fulton have shown the strongest gains in 2020. These areas have ample mid-tier apartments available and lower asking rents in comparison with their urban Atlanta counterparts. Buckhead and Midtown have struggled to add new renters since the pandemic hit.
Before the pandemic hit, Atlanta’s office market had enjoyed years of increased rent growth and high occupancy rates. While the city has recently secured large commitments for office space from companies like Microsoft and Google, the weakness in this sector is beginning to show. One key indicator, space available for sublease, has steadily increased during the first half of the year. This would typically signify a future softening of the office market in the near term.
As an example of this trend, Buckhead has seen large amounts of sublet space go on the market recently. Areas with a higher concentration of sublet space will be especially vulnerable to a prolonged economic downturn as coronavirus cases rise and the pandemic grinds on into the fall and winter months.
Developers remain optimistic about Atlanta’s long term office outlook, and while there will undoubtedly be short term pain in the market, the metro area’s highly educated workforce, lower rents, and relatively affordable cost of living should continue to attract new office tenants.
Leasing activity for retail in metro Atlanta has slowed to minimal pace following the national trend as retail and hospitality have been the hardest hit sectors of the commercial real estate world. The pandemic has caused a massive shift towards online shopping and food delivery services and brick mortar retailers are struggling to adjust and fighting to survive.
Retailers nationwide have backed out of preplanned expansions and are hesitant to commit to renewals. The second quarter of 2020 was one of the worst in recent history in terms of retail leasing in metro Atlanta. Net absorption was negative for the first time in almost a decade. It remains to be seen how long this downturn will last and what the retail recovery will look like, but one thing is for certain – it will not be the same as before the pandemic hit for a long time, if ever.
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