The economic impact of the global pandemic is being felt in markets around the world. The commercial real estate market in the Atlanta metropolitan area has already experienced immediate changes and will undoubtedly see more to come. This unprecedented event in the modern world has rapidly affected how businesses operate and will likely change market valuations for commercial properties in the months to come. In this article we will take a look at current developments in Georgia and attempt to project potential outcomes for the Atlanta commercial real estate market.
The multifamily sector faces extreme uncertainty amid a national job loss number of 30 million. Many experts predict that loan failures in the commercial real estate market will be led by apartment mortgages deprived of cash flows resulting from a rise in vacancies and suddenly unemployed tenants who have no means to pay rent. Forecasts show a rise in vacancy rates over the next year followed by a 2-3 year recovery.
Retail and hospitality industries are expected to take the brunt of the economic fallout from the pandemic. The restaurant industry has been especially hard hit. Garden Fresh, the parent company for Sweet Tomatoes and Souplantation decided to permanently close all 97 locations last week, and this will likely be among the first of many restaurants forced into closure. Restaurant owners and management have scrambled to adjust to a delivery and take out only model, and have already made significant labor cuts. Market rent growth in the Atlanta retail market is forecasted to to fall to as low as -8% by early 2021 with a quick one-year rebound to follow. The long-term outlook shows a steady decline in market rent growth after the quick rebound.
The Atlanta metro office market is currently in a holding pattern, avoiding the big impacts already seen in retail but facing great uncertainty as many office workers are now working from home and it is unclear if businesses will return a majority of these employees to a centralized office setting anytime soon. Limited supply has insulated the Atlanta office market from the worst of the pandemics effects but if this event ignites a long-term shift towards the virtual home office there could be significant changes to the office market as supply would quickly be abundant and in clear need of repurposing. Large office settings would be especially impacted by a long-term shift towards working from home. Office rents in the Atlanta metro market are expected to fall by 7% in 2020, and expect to see shorter lease terms for deals in the coming months. Vacancy rates are forecast to rise while long-term recovery remains unclear.
The good news is that WalMart and Amazon have both recently decided to add facilities for distribution and fulfillment in Georgia, but with the pandemic affecting all other sectors it can only be said that cautious optimism remains in the Atlanta industrial market. Although we have yet to see the full economic impact of the pandemic, the industrial sector could remain stronger than other property types going forward due to continued demand for goods and distribution services. However, the possibility of long-term disruption to east coast port traffic could negatively affect the Atlanta industrial sector.
In conclusion, while extreme uncertainty exists in the Atlanta Commercial Real Estate market there will be opportunities for savvy investors given that the long-term outlook in most sectors will remain positive after the effects of the pandemic have eased. The Meridian Real Estate Group will continue to monitor local market developments in commercial real estate, and we are ready to help our clients in any way we can during these unprecedented and trying times.