Atlanta is coming off a couple of years of slow to negative growth in commercial real estate, but lease rates remain low, says Sam O’Briant, vice president Atlanta Industrial Group, Duke Realty. He points to data indicating the Atlanta market was slowing in 2001 and has only seen the market return in the last year or so.
Historical absorption rates in commercial real estate ran between 8 million and 10 million square feet per year, says O’Briant. Coming off an absorption rate of 14.2 million square feet in 2000, the rate at which the Atlanta market was taking up commercial real estate had dropped in 2001 to 1.1 million square feet and then to a negative rate of 2.5 million square feet in 2002. That trend has reversed, and O’Briant says absorption rates are approaching the 7 million to 8 million square foot range again.
O’Briant credits good labor rates and workforce availability plus low commercial real estate lease rates with part of the growth. Lease rates haven’t caught up to the market rebound, he points out. And, where speculative building had stopped, in favor of build-to-suit or existing space, the developers and institutional financing are getting behind some speculative building.
Recent deals in the area have involved large facilities, O’Briant continues, and those facilities have been close to Atlanta, not in the outlying counties. Duke Realty brought in a 600,000 square foot distribution center lease for Clorox in 2004. Some of these are consolidations of smaller facilities that had been in other cities throughout the region, says O’Briant. He suggests companies are trying to reduce operating costs by reconfiguring their supply chain networks.
Atlanta has location working for it. It is the top ranked logistics site in Logistics Today’s Southeast Region Site Selector, which appears in the February issue of the magazine. It ranks 12th in the nation for its logistics friendliness. It scores well for transportation and distribution resources, the rail and air modes, proximity to ports, workforce, and taxes. Its one black mark is in highway congestion. Yet, says O’Briant, companies have been favoring locations near the city, not in outlying counties.
O’Briant’s view that lease costs are attractive in Atlanta is supported by a new study released by The Boyd Company. Its BizCosts study of warehousing costs takes the top 50 cities identified in Logistics Today’s national Site Selector and measures and compares operating costs for a simulated 350,000 square foot distribution center (DC). The BizCosts study places Atlanta squarely in the lowest third by cost whether the distribution center is new construction or a lease agreement. Total operating costs for the model DC in the BizCosts study are $11,454,984 per year for new construction or $9,972,998 to lease the same space.
The BizCosts study also measures wage costs for a workforce totaling 150 non-exempt employees performing functions from secretary to material handler. Here again, Atlanta is in the lowest third on cost.
Where’s the most expensive place to operate a warehouse? Picking up that same DC from Atlanta and moving it to New York will add nearly 40% to the operating cost and put you in the most cost intensive market in the U.S.