As we approach the second anniversary of the COVID-19 pandemic in the United States, I would like to look at how the top five commercial real estate product types performed in the Atlanta market last year. 2021 was the first full calendar year of coping with the pandemic and its variants.
Overall, at the end of Q4 2021, commercial real estate had adjusted to the new norm and performed well. According to CoStar, at year end, the Atlanta office market had a vacancy rate of 13.8% compared to 12.6% at the end of 2020. Hotels and motels improved with an average occupancy rate of 56% compared to 45.3% in 2020, and the retail market had a 4.4% vacancy rate in Q4 2021 compared to 5.3% in Q4 2020. The vacancy rate in the Atlanta industrial market was 3.3% at the end of 2021 compared to 5.7% at the end of 2020 and the multifamily market ended 2021 with a vacancy rate of just under 6% compared to 8% in Q4 2020.
While the office market benefited in 2021 from corporate moves and expansions driven by the tech industry like Google, Mailchimp, Microsoft and Anthem, CoStar expects rent growth to be flat in 2022 due to the 4.8 million square feet of new office construction combined with almost 6 million square feet of sublease space on the market. The threat to this market in 2022 will continue to be remote working.
The hospitality market in Atlanta mirrored the ebb and flow of the pandemic with the Delta variant having a negative impact at mid-year and the Omicron variant at year end. Current hotel occupancy rates of around 60% are 10% below the pre-pandemic occupancy rate, but could have been worse. According to CoStar, the Atlanta hospitality market added 3,500 new rooms last year and expects to add an additional 5,200 in 2022. Technology options like Zoom, FaceTime, WebEx and other means of meeting face to face without traveling will continue to be a threat to this market.
The Atlanta retail market is driven by its population growth. It is a good example of the adage that “rooftops drive retail.” In the 10 years since the 2010 census, the Atlanta metropolitan area’s population grew by almost a million people. This increase in population, along with the lack of new construction, kept the vacancy rate at 4.4%. The increase in online shopping during the pandemic is a continued threat to this market and the restaurant sector, also lumped in retail, will continue to deal with personnel and supply cost issues that were felt full force in 2021.
Atlanta’s industrial market is driven by its location and population growth. Atlanta is only 250 miles from the major East Coast Port of Savannah. Because of the convergence of three Interstate Highways and two major railroads plus one of the world’s busiest airports, Atlanta is a logistics hub for the Southeastern United States. Population growth in both metropolitan Atlanta and the region continue to drive this market. At the end of 2021, according to CoStar, 32 million square feet of industrial space was under construction. The biggest threat to this market is continued supply chain issues coupled with competition from other cities in the region.
Population and job growth, plus the inflated cost of “for sale” housing, resulted in a strong Atlanta multifamily market in 2021. According to the 2020 census, the Atlanta metropolitan area had a population of almost 6.1 million. As discussed above, both the office and industrial sectors of the Atlanta market are driven by job and population growth. Those workers are increasingly having to rent an apartment because of the shortage and excessive cost of single-family homes.
The choice of an apartment is also a lifestyle decision. A terrific location, an amenity package and the flexibility of renting is an attractive alternative to the responsibilities associated with owning a house. CoStar reports that there were about 21,000 multifamily units under construction at the end of 2021. I see an oversupply of units driving down rents as the biggest threat to this market.
I consider 2021 the year that the Atlanta commercial real estate market adapted to the new norm of dealing with life in a pandemic. 2021 was a successful year for most commercial sectors and I expect that 2022 will look a good bit like 2021.
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