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The Gradually Improving Industrial Markets in Atlanta and Orlando

11 Oct 2012

Like their office-market counterparts, the industrial markets in Atlanta and Orlando have shown noticeable improvement in 2012.

At the year’s halfway point, Atlanta’s industrial vacancy rate was 12.3 percent and Orlando’s was 10.7 percent, according to reports from CoStar Group. While both rates were above the national mark of 9.2 percent, they also represented significant declines from the latter part of 2011 and provide solid evidence that the two markets are headed in the right direction.

Atlanta in Focus

At the end of third-quarter 2011, Atlanta’s industrial vacancy rate stood at 13.1 percent, according to CoStar. The rate has dropped in every quarter since that time.

Looking beneath the overall rate, the vacancy rate for Atlanta flex properties has actually increased over much of the past year. At the end of third-quarter 2011, the vacancy rate stood at 15 percent; by the end of June, it had reached 15.6 percent. Meanwhile, the vacancy rate for the metro area’s warehouse properties dropped one percentage point to 11.9 percent over the same timeframe.

On a down note, the average asking rent for Atlanta industrial properties dropped slightly in second-quarter 2012, from $3.85 per square foot in the first three months of the year to $3.84 per square foot. Net absorption did increase, however, rising from 1.4 million square feet in the first quarter to 1.5 million square feet.

Industrial cap rates also have been compressing. According to the most recent data from CoStar, cap rates averaged 7.93 percent in the first quarter of this year, compared with 8.27 percent in the final quarter of 2011. Fifty-two sales of industrial properties totaling $193.5 million closed in the first quarter; in fourth-quarter 2011, 64 sales totaling $165.5 million closed.

Orlando in Focus

At the end of September 2011, Orlando’s overall industrial rate was 12.3 percent. Like its Atlanta counterpart, it has declined in every quarter since then.

Unlike in Atlanta, the vacancy rates for both the warehouse and flex sub-sectors have declined steadily during the same time. At the end of June, Orlando flex properties had a 13.2 percent vacancy rate, a decline of 1.8 percentage points from nine months earlier. The vacancy rate for Orlando warehouses was 10.3 percent, down from 11.8 percent at the end of the previous third quarter.

The average industrial asking rent reached $5.22 per square foot in metro Orlando by the end of June, an increase of 0.2 percent from three months earlier. Net absorption declined to 806,366 square feet from 1.3 million square feet in the first quarter.

As has happened in Atlanta, industrial cap rates have compressed in Orlando, averaging 6.5 percent in first-quarter 2012; that’s compared to an average of 9 percent in the final three months of 2011. Twelve industrial sales totaling $35.7 million closed in Orlando in the first quarter; in fourth-quarter 2011, 17 sales totaling $21.1 million were completed.