Georgia is home to some of the fastest-growing counties in the United States and its capital city is the economic powerhouse of the south. More than 16 Fortune 500 companies are based in this southern state, including large multinationals like Coca Cola, Delta Airlines, The Home Depot, and AGCO. The state boasts a diverse industry base that relies on manufacturing, agriculture, logistics and distribution, and the energy sector and is a competitive business and real estate hub.
Data published by Colliers International highlight positive indicators displayed by the Atlanta office market in terms of absorption, take-up rates, and the development of new sub-markets. According to the report, at 640,000 square feet during Q1 2015, occupancy rates for office properties in the Atlanta metropolitan area are at their highest since 2009. Leasing activity levels remain robust and vacancy rates have gone down by 20 basis points to 15.6 per cent, with the most significant changes being in MidTown, the Central Perimeter, Northlake, and Northeast Atlanta.
Vacancy rates have been declining for 12 consecutive quarters as demand continues to increase in the city center and adjacent areas. There are approximately 1.7 million square feet of Class A office space under construction in metropolitan Atlanta. Average rental rates have been increasing for 6 consecutive quarters and are 4.1 per cent higher than in 2014. Direct asking prices now average $20.01 / sq ft ($23.98 for Class A space and $16.36 for Class B properties). The most expensive properties are in Buckhead ($30.67 / sq ft), MidTown ($27.12), and the Central Perimeter ($26.13), whereas the lowest rental values can be found in South Atlanta ($19.39) and West Atlanta ($13.34). The past quarter has also been marked by the emergence of new sub-markets in certain northwestern districts of Atlanta, most notably in Buckhead and the Central Perimeter, where 1.6 million square feet of space are being developed and are set to be delivered between Q3 2015 and Q4 2016 (3).
Savannah is home to Georgia's second largest office market. Here, vacancy rates have increased slightly and now average 17.4 per cent, although they are significantly lower in the CBD at 12.8 per cent. Average lease rates are also on the rise in Savannah, averaging $20.47 / sq ft for properties in the CBD, $21.08 for offices in the Westside, and $19.33 for space in the Southside. Demand for office space in Savannah is particularly strong among companies in the healthcare and banking industries.
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Retail & Industrial Market
Strong performance has been the key theme in the Atlanta's retail real estate market. Absorption levels exceeded the 1 million square feet mark in 2014 and occupancy rates are at their highest since 2007. Growth has been mainly driven by new mixed-use developments such as those in North Fulton and Avalon, and further expansion is expected with the completion of large-scale developments in areas like Cumberland, Galleria, and the Atlanta Braves. Retail vacancy rates average 11.3 per cent in the metropolitan area and direct asking prices are $12.86 / square foot. Asking prices are higher for non-anchor space in Buckhead/MidTown and Cumberland/East Cobb, where they can reach values of $27.62 and $18.75 respectively.
The industrial real estate market in Savannah has traditionally outperformed the retail sector due to the strategic importance of the city's port and of the logistics & warehousing industries. Vacancy rates were down to 5.2 per cent towards the end of Q1 2015, when absorption levels reached a record high of over 355,000 square feet. Vacancy rates have been consistently declining since 2010, and they nearly halved over the past 2 years.
Incentive Programs and Schemes
Several incentive schemes are in place throughout Georgia with the objective of strengthening the state's economy and its competitiveness levels. Business owners who need assistance financing their real estate in Georgia have access to the following programs:
- The Tax Allocation Districts Program, available across 10 areas in Atlanta and providing financial assistance to business owners looking to carry out real estate redevelopment projects
- New Markets Tax Credits, a federal program that aims to promote growth in deprived areas and which can help finance commercial, industrial, and mixed-use property
- Investment Tax Credits to support the expansion of business premises in the manufacturing and telecommunications sectors
- Inventory Tax Exemptions
The real estate market in Georgia is set to keep expanding in size and value for the next 12-18 months. Strong performance is particularly expected from the Atlanta office market, where rates are set to keep rising and to reach new record high values. A strengthened economy will lead to job creation, and this in turn is likely to impact demand for commercial real estate in Georgia's top real estate hotspots, mainly from tenants in the transportation, logistics, and professional business services sectors.