Marcus & Millichap's new National Retail Report states that vacancy in the Atlanta market is forecast to rise 280 basis points this year to 12.6%, after already going up 170 basis points in 2008. Asking rents are expected to drop 3.5% over the year to $16.87 per square foot, while effective rents will decline 4.5% to $15.01 per square foot because of weaker tenant demand. Household income is expected to dip just below $60,000 this year.
Job losses will continue to take a toll on Atlanta and other metropolitan areas statewide, with the Georgia Department of Labor on Thursday posting a record high unemployment rate of 9.3% in February. At least 111,000 jobs have been lost in the Atlanta area over the past year, a decline of nearly 5%, with Marcus & Millichap predicting a loss of 37,500 jobs or 1.6% this year.
Southern submarkets will remain in a transition period as redevelopment efforts continue such as the former Ford Motor Co. plant in Hapeville, which is expected to create 6,000 jobs over the next few years, says John Leonard, regional manager of Marcus & Millichap's Atlanta office. "Softening lower-wage employment is weakening retail sales, especially in locations that cater primarily to blue-collar residents," he adds.
Meanwhile, the upper-income Buckhead area is expected to outperform the entire Atlanta market: "The submarket remains popular with residents and will lead the metro in office development over the next three years, which should help to support retail demand by increasing daytime traffic," Leonard says.
Several ambitious retail projects have been announced or are under way within the Buckhead and Midtown submarkets, and local observers say those developers are hoping to attract more Park Avenue-type tenants to Atlanta's increasingly affluent zone. For example, the $1.5-billion Streets of Buckhead project is planned for nearly 650,000 square feet of retail space combined with more than 350 residential units, though the recession has forced developer Ben Carter to delay his anticipated completion date until the first half of 2010.
Buckhead's retail vacancy is nearing 10% lately, an indication that even the ritziest of shops aren't entirely immune from a tough economy. "Affluent shoppers aren't cutting out spending, but they are spending smarter," says Karen Lowry, an advisor with Atlanta-based Alan Joel Partners.
Lowry tells GlobeSt.com that current and prospective tenants in Buckhead and other parts of Atlanta are making decisions on a quarterly basis lately, while landlords are more agreeable to making rent adjustments or offering concessions to keep tenants in place. "Most retailers that are surviving are tire-kicking and looking for better deals," she says.
From an investment standpoint, Marcus & Millichap's Leonard says activity will remain modest this year, with cap rates continuing to push into the 8% range. Shopping centers northeast of Atlanta, in suburbs like Lawrenceville and Decatur, will likely elicit buyer interest because limited new construction will decrease the potential for tenant turnover.
Operational challenges will be more significant to the north, near Roswell and Alpharetta, he adds: "Tenants in these areas may relocate to newer properties that offer more attractive concessions, which will likely cool investor demand."
Marcus & Millichap ranks Atlanta as the 25th-largest retail market, moving down nine positions from last year. It also points out that the city is the sixth-largest market for construction completions with 3.7 million square feet scheduled to deliver this year, down from 4.5 million in 2008.
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