ATLANTA—Atlanta is attracting distribution and logistics companies at a rapid clip. At the same time, there's limited new industrial construction in the market and vacancy is tightening as demand for space rises.

According to Marcus & Millichap's fourth quarter 2014 IndustrialResearch Market Report, industrial vacancy will tumble 170 basis points to 9.8% in 2014. That's building on a 130-basis point fall a year ago.

What's so attractive about Atlanta's industrial prospects? M&M notes that “extensive” road, rail and airport systems offer a strong network to move goods efficiently. Of course, the region is also home to the Port of Savannah, which is fourth busiest port in the nation.

“Port activity will amplify in coming years as plans move forward to deepen the Savannah Harbor to better accommodate larger shipping vessels,” M&M reports. “Enhanced port operations and ease of transportation have motivated retailers and manufacturing and logistics companies to locate in Atlanta.”

The growth is real. McMaster-Carr, TJX, Procter & Gamble, and Kroger are expanding their local footprint and building new industrial facilities in Atlanta. Even still, M&M reports 2014 deliveries will remain limited, falling below pre-recession levels. Build-to-suit industrial projects are the big trend.

“Developers have more than 16 million square feet in the planning pipeline, however, indicating a pickup in future construction,” M&M says. “So far this year, little competition from new space and strong tenant demand has resulted in 8.6 million square feet of net absorption, pulling down vacancy 140 basis points to 10.1%.”

PJ Charlton, senior vice president of Direct Investments at KTR Capital Partners, recently shared about industrial development in the Atlanta market at RealShare Industrial in Miami. You can see more post-even coverage here. He sees Atlanta as a good place to develop industrial projects.

“Major market land costs are getting back to where they used to be,” Charlton said. “Certain markets are feeling it more than others, like South Florida. We are trying very hard to find land. You have all kind of alternative uses competing. Land prices today could be $30 to $40 a building foot. In Atlanta you can buy land, a building and maybe a couple o tenants or $30 a foot.”

As demand for industrial space strengthens, M&M predicts vacancy will retreat further, giving operators more leverage to lift rents. Specifically, the firm forecasts asking rents will jump 4.8% to 2014 to $3.52 per square foot. That's after a 3.7% climb in 2013.

On the investor front, M&M says improving property performance will sustain investor interest in local industrial assets. Over the past year, the firm reports, buyer composition shifted as private syndicates targeted warehouse facilities in northern areas of Atlanta along Interstates 85 and 75, outnumbering REITs and institutional buyers.

“Accordingly, sales velocity for properties measuring 20,000 to 50,000 square feet grew 15% over the past year and represented a significant share of transactions,” the firm concludes. “Sales activity for assets of more than 1 million square feet slowed. Overall, well-located stabilized properties typically command cap rates in the low-8% range while class C properties' initial yields begin in the mid- to high-8% area.”