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Atlanta Commercial Real Estate Market 2022 Year in Review

By Bill Adams, Founder, Adams Realtors & Adams Commercial Real Estate

As we closed out the year 2022, the Atlanta Commercial Real Estate Market continued to fare well despite the threat of a recession and nagging inflation caused by supply chain issues related to the Covid-19 pandemic and the war in Eastern Europe. At the end of the year the national unemployment rate stood at 3.5% while the unemployment rate for the Atlanta region was 2.6%.  In a positive sign, the CPI, a measure of inflation, was at 6.5%, down from 8.2% at the end of the 3rd Quarter.

The Federal Reserve Bank continued to raise the Federal Funds Rate and on December 31, 2022, that rate was 4.10%. Many economists predict that the “terminal” rate for Fed Funds in 2023 will be in the neighborhood of 5% to 5.5%.  Some economists are pushing off the threat of a recession until the second half of 2023. Others forecast a “soft landing” with a short recession or no recession at all.

Let’s review how the commercial real estate product types fared in Atlanta in 2022.

Office Market

The Atlanta office market continues to feel the effects of the Covid-19 pandemic as many companies are still allowing their employees to work from home. At the end of the year, some firms were requiring employees to spend some time in the office, usually three days a week. According to the Washington Post, Kastle System which manages building entry systems, stated that in the 10 largest metro areas in the U.S., office occupancy was up to 50% of pre-pandemic levels.  I expect that this trend will continue to gradually improve in 2023, with the pandemic becoming more of an endemic. This trend will help to shore up the office market.

This market is bifurcated by class with the newer, modern Class A properties doing well and the B and C buildings struggling. A good example of this in the Atlanta Market is the Midtown office market with mostly newer buildings and the Downtown market with mostly older properties. Many of these older buildings may be converted into other uses. Multifamily housing and hospitality conversion opportunities often target older office buildings for adaptive reuse.

According to CoStar, at the end of 2022 the Atlanta office market contained about 334 million square feet of space.  Over the year, 3.3 million square feet of new space was delivered, and 1.3 million square feet of space was absorbed. The overall vacancy rate for the Atlanta office market stood at 14.2% while the 12-month rent growth was 1.7%.

Hospitality Market

The Atlanta hospitality market continues its recovery from the bleak days of the pandemic.

Business travel has been slow to recover with many businesses using Zoom and similar tools to reduce the necessity of face-to-face meetings and cut down on travel expenses. Still, business travel is on the rise as many businesses are coming to the realization that face-to-face meetings need to be part of their business model. The city hosted 20 conventions in 2022 with Dragon Con attracting over 60,000 attendees and Primerica’s convention attracting over 30,000 people.

Atlanta continues to attract tourists with its excellent cultural and sports attractions. However, many hotels are still facing staffing issues that began with the pandemic in 2020.

At the end of 2022, CoStar reports that there were 111,636 hotel rooms in Metro Atlanta.

The occupancy rate was 65%, up 8.1% over the last year and down from a pre-pandemic 70%.  The Average Daily Rate was $118.24, and the Revenue per Available Room was $76.79. There are 4,900 rooms under construction and 2,100 rooms were delivered in 2022. According to CoStar, the largest hotel sale in 2022 was the sale of the Renaissance Atlanta Midtown for $74.9 million or $246.00 per key.

Multifamily Market

At the close of 2022, the Atlanta multifamily market continued to show some signs of weakness – slow rent growth and poor absorption. Whether these conditions are just a minor bump in the road or a long-term trend, it is too early to tell. Atlanta’s fundamentals remain strong with low unemployment and continued job creation though. Since mid-year 2022, home mortgage interest rates have more than doubled and single-family home prices continue to rise. At the end of 2022, the average Intown Atlanta home sold for $670,000 with an interest rate of 6.7%. Higher home prices and interest rates ought to price many potential buyers out of that market and drive them into (or keep them in) the multifamily rental market.

The prospect of higher interest rates along with increased material and labor costs may dampen development of some new multifamily properties. Less supply and unaffordable “for sale” homes should bode well for long term rent growth and absorption. In keeping with the adage, that “all real estate is local,” I see Intown Atlanta multifamily properties outperforming other locations in the metro area. Many of these properties are in walkable, transit-oriented areas with abundant amenities.

CoStar reports that at year end, the Atlanta multifamily market consisted of 484,241 units with a vacancy rate of 9.2%. Developers delivered 14,532 new units during 2022 and the absorption rate was a negative 426 units. Annual rent growth was an anemic .8% but, in spite of all these issues, sales volume was $12.6 billion. Investors continue to find the Atlanta multifamily market an attractive place to invest.

Industrial Market

The Atlanta industrial market continues to outperform other product types in the commercial real estate space. The attributes that make Metropolitan Atlanta a leader in the industrial market differentiate it from its competitors. Three Interstate Highways converge in Downtown Atlanta, connecting the city with the east coast, midwest and the southern tier of states all the way to California. Two major railroads, CSX and Norfolk Southern provide rail connections to population centers throughout the country as well as ports on both coasts. The ports of Savannah and Charleston are less than a half day’s drive away. Hartsfield-Jackson International Airport links the city with suppliers and markets in Asia, Europe and the Americas. Because of these linkages, Atlanta continues to be a major distribution hub for the southeast. The Atlanta industrial market continues to be especially attractive to online retailers.

According to CoStar, the Atlanta market has over 805 million square feet of industrial space. In 2022, 23.4 million square feet were added to the market and 15.8 million square feet of space were absorbed. The vacancy rate was up slightly to a still low 4% and rent growth was a healthy 12.3%. Sales volume was $5.5 billion in 2022, down from 2021’s total.

Retail Market

Atlanta’s population growth and the lack of much new development contributed to the retail market’s good performance in 2022. Competition from online retailers remains a challenge and the shortage of workers in the restaurant industry continues to be an issue with food service operators. Adaptive reuse projects involving declining regional malls and shopping centers continue to have an impact on the supply of retail space in the market. As a result, this market remains a landlord’s market with a low vacancy rate and healthy rent growth. Well located grocery-anchored shopping centers continue to prosper. Regional malls, like Lenox Square and Phipps Plaza, that are constantly reinventing themselves, continue to do well.

According to CoStar, the Atlanta area has 368 million square feet of retail space. In 2022, 1.9 million square feet of new space was delivered, representing one half of one percent of the total space in the market. In the last year, 3.4 million square feet of retail space was absorbed which led to a historically low vacancy rate of 3.8%. Rent growth was a solid 7.4% and a total of $4.5 billion retail properties sold in 2022.

Land Market

As we have stated in earlier reports, the Atlanta land market is difficult to define because a developer may purchase an improved property and then demolish an existing building to develop the land. 

Here is a sampling from CoStar of current Average Sales Prices in the markets within about a 6-mile radius of Downtown Atlanta. The sales prices vary by location and the size of the property. As you know, the size of a property usually has an inverse relationship with its price per square foot.

Submarket                                Average Price Per Square Foot

Downtown                                                  $645

North Downtown/South Midtown              $178

North Midtown                                           $319

Buckhead                                                    $165

West Midtown                                             $20

Castleberry Hill                                           $53

Grant Park/Old 4th Ward                             $68

East Atlanta                                                $22

Little 5 Points                                             $64

Downtown Decatur                                     $43

SUMMARY

The 2022 Atlanta Commercial Real Estate Market was the tale of two halves. The first half of the year was a continuation of the low interest rate environment and, despite high inflation, good confidence in the overall economic outlook. The second half of the year saw markedly higher interest rates and a gradual tapering of the inflation rate. Because of rising interest rates and the threat of a recession, many developers began to tap the brakes on proposed developments.

The Atlanta market continued to have great fundamentals with strong population growth, world class transportation infrastructure and low unemployment. Despite the headwinds mentioned in this report, I expect that 2023 will be another solid year for the Atlanta CRE market.

Questions or comments about this 2022 year in review? Contact me at 404-688-1222 or wtadams@adamscre.com.

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About Us

• As a native Atlantan who grew up in a house built by my grandparents in 1902 across the street from Grant Park, I have always loved the City’s downtown and historic intown neighborhoods. I went to school from the first grade through graduate school in downtown Atlanta.

As a child growing up in the 1950s and 1960s, I witnessed and mourned the decline of those wonderful old “close-in” neighborhoods and their business districts. By the time I was in my early 20s in the late ’60s, I had gotten involved in early intown revitalization efforts in Grant Park under the auspices of a program known as “Model Cities.” After a tour of duty in the Army and Graduate Business School at Georgia State University, I joined the forerunner of the Grant Park Neighborhood Association in late 1974. In the early 1970s most intown neighborhoods were “redlined” by banks and neglected by the local government. The neighborhood revitalization movement in Atlanta was in its infancy. Banks refused to make real estate loans in these “high-risk” neighborhoods. The level of city services was poor and to make matters worse, the city had rezoned many of these neighborhoods from single-family to multifamily residential in the 1950s.

I became a neighborhood activist in Grant Park and, along with others, helped to bring about one of the largest “down zonings” in City history, converting the area back to single-family/duplex zoning from apartment zoning. I was also a community representative and later President of the local Neighborhood Housing Services program, which helped local lenders understand the housing market in the City’s neighborhoods and helped end their practice of not making loans in these communities. I later served as a neighborhood association and Neighborhood Planning Unit (NPU) Chair as well as a board member of the civic groups working to restore the Cyclorama in Grant Park and historic Oakland Cemetery.

All these experiences have had a profound effect on me and the company that I founded in 1979. I had a commercial real estate background but came to realize that strong neighborhoods are vital to a city’s quality of life and its commercial core. Adams Commercial’s approach to real estate has always reflected the values of neighborhood activism. Our transactions involve people, not just numbers. We are in the problem solving and information business. After more than 40 years of service, our goal is to complete our client’s purchase or investment while at the same time adding value to the community through that transaction.

I hope that you find our website to be a helpful tool whether you are planning to buy, sell or are trying to get a good feel for the state of the commercial real estate market in Atlanta. If you have any questions or comments, please e-mail me at wtadams@adamscre.com. If you have an interest in commercial real estate, please visit our Adams Commercial Real Estate Website at adamscre.com.

Thanks,

Bill Adams, MBA, CCIM, ALC, CRB
President
ADAMS COMMERCIAL REAL ESTATE
Atlanta, GA

Our Core Values: Success, Integrity, Wisdom, Dependability, Community

At Adams Commercial we define SUCCESS when our clients get up from their closing with a smile. To accomplish this,  we start by putting the needs of our clients first, which to us is the essence of INTEGRITY. We bring the collective WISDOM of our agents to every real estate deal … wisdom that comes only from the company’s years of business experience and expertise in intown markets. Whether it is showing up at the appointed time or making sure all details are noted and deadlines met, we believe DEPENDABILITY is also an essential ingredient of a successful real estate transaction. We believe that your successful purchase or sale adds value to COMMUNITY. And we are proud to play a role in building and sustaining a thriving community.

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