This Week on The Street – August 20, 2010

by Harold Shumacher

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This Week on The Street

(A more or less regular compilation of news, factoids and observations)

One of the best sources for a lot of real estate information in a short amount of time is Data Bank’s bi-annual Mid Year Symposium-a rapid fire overview of Atlanta’s economic and real estate activity in the major segments of office, industrial, multi-family and retail.

The latest installment, held August 12, 2010, was no exception.

Beginning with a historic overview from Data Bank founder and CEO Alan Wexler the session began with some jolting statistics. For the first time in its history Georgia’s unemployment rate is now greater than the national average. In addition, employment levels are virtually the same now as they were a decade ago. Atlanta has had population growth but no real economic growth.

Furthermore, Atlanta is in a malaise, to quote former President Jimmy Carter, the city is now perceived to be average in the eyes of many national business leaders rather than the “shining city on the hill” it once was.  Economic development recruiters, major CEO’s who travel the country find themselves defending Atlanta rather than extolling its virtues.

A conversation, hosted by former AJC business reporter Maria Saporta, featuring Republican attorney general Sam Olens and Cousins CEO Larry Gellerstedt followed.  Olens, fresh off his primary victory earlier in the week, noted that the aging and growing diversity of metro Atlanta’s population are realities for future growth.  In addition the suburbs can no longer function as islands. The big picture issues-primarily transportation and water-cross jurisdictional lines and have to be dealt with at both the state and regional levels. One note of encouragement was Atlanta’s continuing attraction to the educational elite, the talented young college graduates attracted to the city.  Jobs follow talent was the comforting mantra that ended the conversation. The key question is does the current crop of leaders have the boldness and political will necessary to make the hard decisions to assure Atlanta’s continued growth.

Some other highlights. On the investment front,  quality properties (the trophies if you will) when brought to market continue to attract significant interest and healthy prices. Many distressed properties are not being sold-the perception being that they’re not good deals at any price.

In the office segment it’s estimated that metro Atlanta’s overall vacancy rate is 25-30% when you factor in all the sub-lease space plus the shadow space (space that is leased but not occupied.) Four new office towers in Buckhead, none of which are more than half leased adds to the problem.

Industrial brokers may be seeing the most activity in the past few months, a good harbinger of new business expansion according to many. The key event for the distribution and “flow through” folks is the long awaited expansion of the Panama Canal. With that event, in 2014, it’s expected that the port of Savannah will become increasingly important as a major east coast distribution hub. Expect to see a sharp increase in both rail and truck traffic out of the port.

It’s still a good time to be a renter, according to the multi-family experts-whether by choice or circumstance. Rental rates are down an average of 10% from where they were 18 months ago. Since the beginning of 2010 they’re still down 5 ½ % but landlords are offering fewer concessions (perceived as a positive.)

The retail panel, which I was a member of, had a similar mixed news message. The core markets, such as Midtown, Buckhead and Perimeter remain strong-rental rates are holding and there are few vacancies-especially the smaller spaces that might prove attractive to fast casual restaurants (one segment that continues to remain strong.) Inside the city restaurant sales, on average, are on an uptick in the suburbs they’re still flat. The way I phrased it was there’s a recession inside the city and a depression outside (perhaps a bit strong but puts it in perspective.)

On average sales are improving from last year but still lag the pace of two years ago. Increases in the 5-10% range –year to date- are not unusual and, for the most part, the bleeding has stopped.

New restaurants continue to open but mainly in the suburbs with predictable concepts.  The segments growing the fastest: anything you can wrap (sandwiches, burgers, burritos and pita places); yogurt, burgers and pizza.

On the high end there are some major chains looking at opportunities but they’re very deliberate in their decision making process and likely won’t hear any announcements of note until year’s end.

We’re also seeing a second wave of  Asian ethnic restaurants (Korean and  Japanese  leading the way)  expanding further into the northern suburbs-especially in the Duluth and Suwanee areas.

For the most part these restaurants feature more impressive decors-getting away from the first generation ethnic store front look- bolder menus, more regional cooking and a slightly greater emphasis and availability of spirits.

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