In his periodic market report, Leonard predicts existing 9.5% vacancies will drop to 9% by year-end; rents will rise; retailers will expand; and investors will continue to fight for top-tier properties at high-end prices. The M&M broker expects all this to happen even as developers complete three million sf of new product this year, up from 2.5 million sf in 2003. "The arrival of new retail space this year is unlikely to have a negative impact on vacancy as the majority of the space is pre-leased," Leonard says. "The region's continued population and employment expansion has many retailers eyeing the metro area for additional outlets."
He says Atlanta's retail scene "will continue to undergo transformation in 2004" as the city welcomes the first retail component of the much-heralded, $2-billion, 138-acre Atlantic Station project in the Midtown submarket. Developers are plan to complete several retail projects in the fast-growing suburbs.
Leonard's crystal ball sees metro area employers expanding their payrolls for the second consecutive year, generally a motivator for higher retail store sales. "Metro area employers will hire 62,500 workers by year-end," he says. "The professional and business services sector will lead in employment growth, which indicates expectations for renewed optimism among many of Atlanta's corporate headquarters," Leonard says.
The high-tech and telecommunications industries are expected to increase payrolls for the second consecutive year in 2004. Retail sales are expected to climb by 5.3% during the year.
Besides being good news for the general metro community, the prediction of higher retail sales is also music to investors' ears. "Continued population growth in the metro area will provide investors with ample opportunities to secure returns in the single-tenant and multi-tenant retail markets," Leonard says.
The largest project for 2004 is the one-million-sf District retail and entertainment component of Atlantic Station. Additionally, the number of grocery-anchored shopping centers will increase as several supermarkets open near rapidly expanding subdivisions, the broker notes.
Rents are projected to rise and that's also good news for potential investors, Leonard says. The average asking rent is expected to climb by 2.3%, to $16.59 per sf by year-end. "Some owners of underperforming properties in second-tier locations are likely to remain highly competitive with rents to lease available space," the M&M executive says.
The single-tenant market is expected to be the hottest arena for investors in 2004. "Increased investor interest in this sector is likely to stimulate multiple bids for highly sought-after properties," Leonard predicts. In 2003, dollar volume surpassed 2002's level of $244 million as many investors purchased drugstores and fast-food restaurants, which typically trade at above-average prices, the broker says.
As investment activity heats up, "prices will rise further as many buyers bid on top-tier properties," Leonard forecasts. During 2003, over $640 million of multi-tenant properties were purchased, topping 2002's level of $512 million.
Cap rates are expected to hover in the 8.5% to 9% range this year as recently completed shopping centers "will remain an investor favorite," Leonard says. "The metro area's growing suburban communities ensure additional neighborhood and community shopping centers will be developed, giving investors more buying opportunities.
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