At long last, Atlanta looks set to enjoy another construction boom—one that may even exceed the Olympics-related surge of the 1990s. This year, a number of large-scale projects are slated to break ground, among them the new Braves stadium, the Falcons stadium, and two large developments in the Perimeter area. In addition, almost 16 million square feet of industrial projects have joined the market, including projects by Under Armour, Kroger, and Restoration Hardware. The renewed activity is good news for the Atlanta market, but developers, landlords, and potential tenants need to brace themselves for increased labor and materials costs.
Projects Planned and Underway
The projects underway this year are among the largest in Atlanta history. The Atlanta Braves’ stadium project encompasses not only a $672 million stadium, but also a $400 million mixed-use development surrounding the stadium site. The Atlanta Falcons stadium, planned for the Georgia World Congress Center campus, is a whopping $1.2 billion project. Both are scheduled for completion in 2017. (The Falcons stadium could be delayed, however, by a lawsuit objecting to the city’s plan to sell $278 million in bonds to fund the project.) Moreover, if the industrial projects mentioned above come to fruition, an additional $56 million of industrial construction could come into play.
Meanwhile, in the Central Perimeter submarket, KDC Real Estate Development is building one of Atlanta’s largest office developments, a 2.2 million-square-foot project on 17 acres across from the Dunwoody MARTA station. Insurance company State Farm will lease 585,000 of those square feet, with plans for more in coming years. At an adjacent site, the 260,000-square-foot former GoldKist/Cotton States headquarters has been acquired by an affiliate of Crown Holdings Group, Dunwoody Crown Towers LLC, which will either fill the existing building or redevelop the approximately 15-acre site. Current zoning allows for more than 1.7 million square feet of commercial development there.
Taken together, these projects amount to a projected construction value of $2-3 billion. Add to that the Buckhead Atlanta project that is well underway, a potential Hines multi-story development at 700 Northpark near Abernathy Road and GA 400, the current Inbound Roadway project at Hartsfield-Jackson airport, and several other major initiatives, and the Atlanta construction market is ready to set new records in the next few years.
Coming Shortages
Because many of Atlanta’s architectural firms, construction companies, and vendors who employ skilled craftsmen downsized their human resources during the Great Recession, it comes as no surprise that the increase in construction activity is expected to result in labor shortages in these categories. Shortages in certain building materials – such as concrete, steel, carpeting, etc. – are also likely, and companies that supply these products will be hesitant to increase production until demand actually materializes. With less supply in the short term, prices are predicted to ramp upward.
Advice for Tenants and Developers
With the pending rise in material and labor costs, rental rates will naturally escalate as well. Given this likelihood, we advise our clients whose leases will expire in the next eighteen months to get into the market today.
During the past few years, developers have been reluctant to build new industrial space unless they had a tenant ready to fill it. Potential industrial tenants have been frustrated by a lack of 150,000-250,000-square-foot, 32-clear spaces in prime submarkets like the Northeast I-85 Corridor. Now, however, developers are considering speculative buildings for the first time in years. As retail and e-commerce markets rebound, and demand for distribution and warehouse facilities escalates, industrial developers should act now – before the best subcontractors become scarce and costs escalate.
Advantage: Landlords
It is clear that the Atlanta construction market is on the cusp of a turnaround that will last at least through 2018. Accordingly, we expect a shift in the commercial real estate market from the tenant’s advantage to a landlord’s market. As the market turns, rental rates will increase, and concessions will be hard to come by. To avoid being caught with unexpected occupancy costs or hampered by project delays, tenants must make their move soon.
Blog contributed by Scott Hardeman, Vice President, Cresa Atlanta. Scott is an expert in industrial corporate site selection, lease negotiations and facility disposal. For more information, please contact Scott at 404.446.1863.
