In keeping with the economy and other real estate sectors during the past year, a slow-but-steady, fragile recovery has been underway in the Atlanta retail market, with industry experts expecting 2013 to be a year of continued improvement. The 324 million-square-foot Atlanta retail market absorbed 1.3 million square feet of space during the first three quarters of 2012, according to a recent report from the Atlanta office of Cushman & Wakefield of Georgia, Inc., which notes that “Increasing tenant demand led to a fourth straigh quarter in net occupancy gains for the first time since the third quarter of 2008.”
Overall retail vacancy ended the third qurter of 2012 at 10.5 percent, down marginally from the 10.8 percent registered during the same period last year. An overall asking rental rate of $12.98 per square foot reflected a 3.1 percent drop during the previous 12 months, the report notes.
“Landlords have focused their efforts on offering enticing rent concessions, as previously generous tenant improvement allowances have now become limited,” it said.
The Atlanta retail market showed numerous signs of improvement in 2012, according to Alexandet Deitch, vice president and principal, Colliers International Atlanta. “In 2011 many retailers that were not already in Atlanta looked at this market as a good opportunity for their future growth,” he said, “and in 2012, many of these retailers decided to begin signing leases and moving forward with their Atlanta growth plans.”
Atlanta’s 2012 retail market was marked by big-box and mid-size-box retailers implementing plans to “right-size” their square footage in order to maximize their sales while essentially decreasing their rents, Deitch said
Smaller retailers in the 1,000-to-2,000-square-foot range were taking advantage of the market to get good deals on spaces “which may have only become available due to the toll that th eeconomy has taken on small-business owners and many francisee-owned operations.”
From the landlord perspective those with higher-quality properties had a good year in 2012, according to Deitch. Those with less-desireable properties had a tough time leasing space.
“After having their spaces remain vacant for all of 2010-2011, some of the owners of Class B and C centers have begun to think creatively and re-position their centers, filling their spaces with schools, recreational or medical users, or other non-traditional retail uses,” he said.
Working through oversupply
The “hangover” from the great recession isn’t over, but there definitely has been improvement in the Atlanta retail market over the past year, according to Ray Uttenhove, executive vice president and market leader for SRS Real Estate Partners.
“We’ve worked our way through an oversupply of mid-sized and larger boxes during the past couple of years, especially during 2012,” Uttenhove said. “Shop sapce is a big concern for everyone – things have improved, but there are still challenges, particularly in out-lying markets.”
Retailers have been focused on optimizing their “fleets” of stores, according to Uttenhove, “a process which cna include downsizing and/or consolidationg, as well as expanding where there are opportunities.”
Rents have stabilized, and are actually rising in some core submarkets, accroding to CBRE, Inc. Senior Vice President Kirk Buttle.
Prospective tenants are finding top-quality space in major submarkets’ centers and properties diffiicult to find, especially for class A space, Buttle said. Big-box space throughout the market is harder to find these days. And “there continues to be an over-abundance of small-shop space in suburban and neighborhood markets,” at least in part due to fallout among smaller, “mom-and-pop” retailers, he said.
Outlook
Uttenhove looks at 2013 as a trasitional year for the Atlanta retail marketplace.
In addition to being a time “when we will finish cleaning up” damage brought about by the Great Recession, “2013 will be a year for planning, releasing and finalizing some significant new developments that will happen in 2014.” Projects that can be included in this category, she notes, include 350,000-square-foot Buckhead Atlanta; the 300,000 square-foot retail component at Ponce City Market; and retail portions of Avalon, the $600 million 87-acre, mixed-use project underway in Alpharetta.
“Looking forward, [retail] property owners should expect a better year, since there is a limited amount of new development,” said Buttle.
“Problem centers” will continue their struggles, he notes, “but as the housing market begins to turn around, we anticipate that demand for retail space will improve.”
Rents will continue to increase, Buttle predicts, “while the all-too-familiar incentives typical of the past five years will diminish.”
All in all, the retail market will continue to be fragile in 2013. “But unlike the past five years, we anticipate it will be a a ‘healing year’ for the industry,” he said.