U.S. and Atlanta Market Update Q1 2017
The industrial sector maintains its status as an investor favorite. Nationally, the vacancy rate declined for both Warehouse/Distribution and Flex/R&D. Net absorption was not as strong as the last two quarters but keep in mind, with first quarter seasonality, this is usually the slowest time for both absorption and construction. Market rents increased at similar rates as quarters past and every metro posted positive rent growth.
“The industrial sector has once again outperformed other property types in terms of both occupancy and rent growth,” said economist Barbara Byrne Denham in REIS’ Q1 2017 Industrial First Glance report.
Net absorption may be down on a quarter-to-quarter basis, but if you look at the annual trajectory, net absorption is up. Nationally, net absorption for Warehouse/Distribution was 20 million SF in Q1, up from 15.7 million SF in Q1 2016. For Flex/R&D, vacancy declined 20 basis points to 10.9% and net absorption was 2.6 million SF, up from 1.3 million SF in Q1 2016 – a percentage increase of 100%.
New construction totaled 14.9 million SF in the quarter, with five metros accounting for 54% of the new completions, (53% of the space in these five metros was preleased). Atlanta led the way with 2.1 million SF of new construction. Along with Orlando (1.6 million SF), Miami (1.5 million SF), Chicago (1.5 million SF) and San Bernadino/Riverside (1.4 million SF), these metros accounted for 33% of the national net absorption.
Nationally, a total of 517 buildings were delivered to the market in the quarter totaling 63,349,697 SF, with 268,096,457 SF under construction at the end of Q1, according to CoStar. The average quoted asking rental rate for available Industrial space was $6.14 per SF per year at the end of Q1, reported CoStar. This is a 1.7% increase from the end of Q4 2016.
Warehouse and storage jobs expanded 6.8% in the first two months of 2017, compared to the same period in 2016. “This reinforces the sentiment that demand for warehousing space continues on an upswing,” said Denham.
Aggregate trade numbers (goods exports plus imports) increased $10.6 billion in January and February, up 3.4% over Q4 2016 and 5.7% over Q1 2016.
In February, The Institute for Supply Management’s purchasing managers’ index (PMI) was the highest in over two years at 57.7. In March, it fell back to 57.2, which is still the higher than any month since the end of 2014.
“Any index above 50 indicates that economic activity in the manufacturing sector expanded,” according to a 2016 REIS report.
The U.S. Census Bureau recently reported that advance estimates of U.S. retail and food services sales for April, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $474.9 billion, a 4.5% increase from April 2016.
REIS predicts that momentum for industrial will hold strong throughout the year. Vacancy and rent growth should also remain steady as a result of limited new construction in most markets.
Denham mentioned that the rosy outlook for industrial could potentially be affected by the uncertainty of retail: “…with so many retail brands closing stores, the overall movement of goods around the country could slow; how and where new channels open—including more e-commerce—is hard to estimate.”
However, in Bull Realty’s Q1 Retail Market Update, Concern for Retail is Overstated, the main takeaway is in the title. It is also worth mentioning that nationally, e-commerce sales for the first quarter, adjusted for seasonal variation, but not for price changes, was $105.7 billion, an increase of 4.1% from Q4 2016.
By all accounts, traditional retail is chugging along while industrial is taking off.
Spotlight on Atlanta
Not only did Atlanta top the charts with new construction, the metro absorbed about 3.1 million SF of industrial space during the first quarter.
Economic indicators are outstanding. Atlanta is now Number 1 nationwide for annual job gains, with 103,100 jobs gained in the past 12 months, (year-ending April 2017). Industrial using jobs, industries include manufacturing and trade transportation and utilities, increased 17,700 from January 2016 to January 2017, reported the Marietta Daily Journal.
Industrial development in Atlanta continues to be strong. John Hancock Real Estate and CRG are planning 4 million SF of industrial space in Locust Grove, Jackson County. Industrial Partners Tract has filed plans for a project consisting of three warehouses with approximately 2 million SF in Jackson County. In addition, Taylor & Mathis is planning a 687,500 SF light industrial project in Suwanee, GA, reported BisNow. The largest projects underway in Atlanta at the end of Q1 2017 were Gillem Logistics Center – Building #150, an approximately 1.5 million SF building (31% pre-leased), and Dollar General Distribution Center, 1.2 million SF facility (100% pre-leased), according to CoStar.