Metro Atlanta continues industrial roll as developer bets on 2.6-million-square-foot project

Chalk up another one for the nation's hottest industrial property market.

Developer and investment firm Port Logistics Realty (PLR) has broken ground in Atlanta on a 1.1-million-square-foot industrial park, the first part of a two-phase project that will result in as much as a 2.6-million-square footprint for Dallas-based PLR, which is making its first foray in Atlanta.

The project, "Palmetto Logistics Park," is located about 12 miles southwest of Hartsfield-Jackson Atlanta International Airport, which is south of the city's downtown area. The park is based near Interstate 85 and an intermodal facility occupied by railroads CSX Transportation and BNSF Railway Co. The first phase, which will consist of a 1.1-million-square-foot build-out that is expandable to 1.3 million square feet, is set to be completed this winter, PLR said.

There is no timeline as of yet for work on the second phase, which will include another 1.3-million-square-foot facility. Chicago-based Colliers International will market the property, PLR said. The announcement was made earlier this month.

With a population approaching 6.5 million people, the Atlanta metro area is a huge consumption market. It is also the commerce hub of the southeast U.S. "Strong market fundamentals combined with increasing demand for Class A space makes Atlanta one of the most sought-after industrial markets in the country," said Rob Huthnance, president of PLR Development, a PLR unit.

The new project sustains the momentum for metro Atlanta, which is already coming off the best quarter of industrial activity in its history. The market experienced a record 6.4 million square feet of positive net absorption in the quarter, breaking the previous record set in the fourth quarter of 2014, according to data published this week by New York-based real estate firm Cushman & Wakefield (C&W). Net absorption is calculated by taking the occupied square footage at the end of a period, subtracting the occupied amount at the start of that period, and factoring in levels of vacated and newly constructed space.

About 15.5 million square feet of industrial capacity was under construction at the end of the quarter, up from 10.4 million square feet at the end of the 2016 first quarter. The additional supply might explain why, despite the demand surge, Atlanta's vacancy rate in the first quarter hovered around 8.7 percent, compared to a severely space-constrained industrial market like Los Angeles, whose first-quarter vacancy rate was slightly more than 1 percent.

The project is a so-called speculative development, which is the real estate industry's version of "build it, and they will come." Industrial developers shied away from excessive "spec" development during the years leading up to the financial crisis and recession. This helped the market avoid most of the hammering which would subsequently befall the residential and commercial office segments. Even after the recession ended and the industrial market began what has been a historic, multi-year recovery, spec development lagged.

Propelled by a surge in e-commerce demand, however, spec development has begun to rise. In the first quarter, speculative projects under construction totaled 145.5 million square feet, comprising two-thirds of the square footage currently under construction, C&W said. According to the firm, one-third of spec projects now underway are in Atlanta, Dallas, and southern California's Inland Empire, where many of the Los Angeles area's warehouses and distribution centers are clustered.