2Q 2011 | Atlanta Industrial | Market Report by Colliers International

Q2 2011 | INDUSTRIAL

ATLANTA

MARKET REPORT

Despite Q2, Atlanta Industrial Headed for Positive 2011

MARKET INDICATORS Projected

Q2 2011 VACANCY

Q3 2011

—

NET ABSORPTION CONSTRUCTION

—

RENTAL RATE

—

CAP RATES

—

As expected, the Atlanta industrial market finished the second quarter with more space given back than filled. Industrial absorption over the three month period totaled (392,283) square feet. Clorox’s move-out of 607,650 square feet was the largest in the quarter, single-handedly accounting for the negative absorption. This was anticipated given that Clorox had not been fully utilizing its new 1.25 million square foot build-to-suit when it began operations in the first quarter. Outside of this move-out, a few other companies also vacated space. GENCO, Unitex, Uline, Nioxin and Mitsui-Soko combined for a total of 1 million square feet of added vacancy to the market in second quarter. In the cases of Unitex and Mitsui-Soko, these companies relocated and contracted their space usage. Despite these vacancies, there were a number of second quarter move-ins to help balance out the space added. The largest occupier in second quarter was Electrolux which moved into 600,000 square feet of warehouse in South Atlanta. This was a net gain to the Atlanta industrial market as the company relocated from Chattanooga, Tennessee. Additionally, the majority of space occupancy in the quarter was from tenants ranging between 20,000 to 70,000 square feet. This is an encouraging sign and shows some small business activity is returning to the market; a plus to the local economy and much needed for a recovering industrial market. Finally, in spite of the quarter’s overall negative absorption, Atlanta’s industrial market remains over 2.1 million square feet positive for the year. Now that the second quarter is complete, the focus can shift to expected activity through the end of the year. Industrial leasing in Atlanta has remained fairly steady throughout the first half of 2011, with a mixed bag of large and small transactions. As it stands, nothing suggests this activity will slow. Industrial indices are consistently improving and this is translating to an increased demand for warehouse and distribution space by companies nationwide. However, unlike markets such as the Inland Empire and Indianapolis where vacancy rates are dropping and space options have dwindled, continued on page 2

UPDATE

ATLANTA INDUSTRIAL

NEW SUPPLY, ABSORPTION AND VACANCY RATES

Atlanta Rental Rates Overall Market & Bulk Warehouse* (per sq. ft.) $4.25

$4.25

18%

25,000,000

$4.00

20,000,000

$3.75

www.colliers.com/atlanta

2011

2010

2009

Bulk Warehouse*

2008

Market AVG

*Bulk warehouse defined as warehouse space in excess of 100,000 SF with dock loading and minimium ceiling heights of 24 ft.

2007

(5,000,000)

2006

0 2005

2011 2011

2010 2010

2009 2009

2008 2008

5,000,000

2004

$2.50

10%

2003

$2.75

10,000,000

2002

$3.00

Square Feet

$3.25

14%

15,000,000

$3.50

(10,000,000)

2% -2%

Absorption

Deliveries

Vacancy %

Breaking a string of four consecutive quarters with positive absorption, the Atlanta industrial market saw occupancy drop in the second quarter. Despite this, year-to-date absorption remains positive at 2,137,899 SF. The overall vacancy rate showed no significant movement. There were no deliveries in the quarter, keeping Atlanta’s total industrial inventory at 598 million sq. ft.

MARKET REPORT | Q2 2011 | INDUSTRIAL | ATLANTA

versatile, which may be used in combination with office, R&D, quasi-retail sales and industrial warehouse and distribution uses. Typically has at least 50% office and ceiling heights under 18’.

The amount of vacant space available remains down from Atlanta’s record high of 86 million square feet at the end of third quarter 2010.

•

Electrolux’s move into 600,000 SF of warehouse space this quarter filled a large vacancy that had been on the market since early 2006.

•

By year’s end, Atlanta is expected to see at least 2 million more square feet of existing vacancy taken off the industrial market. Q2 2011 | Vacant Space By Type

Second quarter’s negative absorption breaks a string of four consecutive quarters with an increase in occupancy.

•

Clorox’s move out of 607,650 SF was the largest vacancy to hit the market in second quarter. The good news is CEVA Logistics recently signed a lease to backfill almost all of this space.

•

Industrial leasing activity remains steady in Atlanta with a mixture of small and large transactions. South Atlanta continues to see the majority of this activity.

•

Atlanta will finish the year with its highest amount of positive absorption since 2007. Q2 2011 | Net Absorption by Submarket 150,000

Leasing Activity-The volume of square

50,000

WAREHOUSE 63,882,620 SF VCY RATE = 13.8%

SHALLOW-BAY 11,946,095 SF VCY RATE = 15%

FLEX 8,481,369 SF VCY RATE = 15.5%

Build-To-Suit-A term describing property that

Square Feet

footage that is committed to and signed for under a lease obligation for a specific building or market in a given period of time. It includes direct leases, subleases and renewals of existing leases. It also includes any pre-leasing activity for buildings under construction or planned.

100,000

(50,000)

(100,000) (150,000)

(200,000) (250,000)

was developed specifically for a certain tenant to occupy. Can be either leased or owned by tenant.

(300,000)

Warehouse

Shallow-Bay

Flex

(350,000)

UPDATE Recent Transactions in the Market SALES ACTIVITY PROPERTY

SUBMARKET

SALES DATE

SALE PRICE

SIZE SF

PRICE / SF

BUYER

600 Hartman Industrial Ct.

I-20 West/Fulton Ind

7/7/2011

$22,000,000

525,627

$43.01

Welch Property Trust

3710 Atlanta Industrial Blvd

I-20 West/Fulton Ind

4/28/2011

$12,450,000

446,664

$27.99

Industrial Income Trust

6100 Atlantic Blvd.

Northeast Atlanta Ind

6/14/2011

$7,000,000

217,497

$32.18

Hyundai Motor America

1370 Discovery Pointe Dr.

I-20 West/Fulton Ind

7/8/2011

$6,000,000

150,000

$39.89

Welch Property Trust

LEASING ACTIVITY PROPERTY

SUBMARKET

TENANT

LANDLORD

SIZE SF

TYPE

ProLogis Greenwood 100

South Atlanta Ind

Home Depot

ProLogis

1,245,868

Warehouse Renewal

Hartman V

I-20 West/Fulton Ind

Czarnowski Display

Opus

569,673

Warehouse Lease

3201 Centre Pkwy.

South Atlanta Ind

CEVA Logistics

Duke Realty

404,700

Warehouse Lease

180 Westridge Pkwy.

South Atlanta Ind

Home Depot

First Industrial/CALPERS

363,286

Warehouse Lease

P. 2

| COLLIERS INTERNATIONAL

SOUTH ATLANTA

Flex-A type of building designed to be

•

CHATTAHOOCHEE

Shallow-Bay Distribution-A type of building designed to be used for the distribution of materials or as a medium-sized manufacturing facility. Typically has 10%-30% of office, ceiling heights of 18’-24’ and bay depths of 120’-190’.

Because of the minimal amount of absorption activity in the second quarter, the overall industrial vacancy rate showed no significant movement.

STONE MOUNTAIN

designed to be used for bulk storage or materials, distribution or heavy manufacturing. Typically has a small amount of office space, ceiling heights of 24’ and bay depths of over 190’.

•

SNAPFINGER | I-20 EAST

Warehouse-A type of building

ABSORPTION & LEASING ACTIVITY

I-20W | FULTON IND

Bulk

VACANCY & AVAILABILITY

NORTH CENTRAL

Vacancy Rate-A percentage of the total amount of physically vacant space divided by the total amount of existing inventory.

NORTHWEST ATLANTA

occupied space over a given period of time, calculated by summing all the positive changes in occupancy and subtracting all the negative changes in occupancy.

CENTRAL ATLANTA

Absorption (Net)-The net change in

Atlanta’s vacant industrial space has been slow to diminish. This is mostly due to the balanced environment of expansions and contractions Atlanta currently finds itself. For the second half of 2011, this should change. Over 3.3 million square feet of space is expected to be filled in the next six months; the majority of which is through new entry or expansion in the market. Barring any large, unforeseen vacancies, this will result in a 0.5% drop in Atlanta’s industrial vacancy rate by the end of the year. Lowe’s Home Stores, SANY America and Czarnowski Display Services will be the major headliners in the second half; as it relates to move-in activity. Although far from absorption levels in the mid-2000s, Atlanta’s industrial market will finish the year with the highest increase in occupancy since 2007.

NORTHEAST ATLANTA

DEFINITIONS

MARKET REPORT | Q2 2011 | INDUSTRIAL | ATLANTA

UPDATE

Market Comparisons

VACANCY

PROP TYPE

BLDGS

EXISTING PROPERTIES TOTAL SF

DIRECT VCY %

CENTRAL ATLANTA IND. Flex 89 Shallow-Bay 53 Warehouse 206 Total 348

2,972,804 1,617,147 11,436,619 16,026,570

7.3% 4.4% 9.1% 8.3%

CHATTAHOOCHEE IND. Flex 108 Shallow-Bay 30 Warehouse 353 Total 491

2,738,047 915,204 17,801,188 21,454,439

9.4% 14.7% 8.5% 8.8%

I-20 W / FULTON IND. Flex 89 Shallow-Bay 227 Warehouse 731 Total 1,047

2,869,270 13,056,789 75,532,538 91,458,597

SUB VCY %

VCY CURR %

VCY PRIOR %

NET ABSORP CURR SF

NET ABSORP YTD SF

DELIVERIES NEW SUPPLY CURR SF

U/C

NEW SUPPLY YTD SF

RENT

UNDER AVG CONSTR RENT SF (NNN)

217,793 71,500 1,041,718 1,331,011

7.3% 4.4% 9.1% 8.3%

8.0% 4.4% 9.9% 9.0%

20,464 0 91,830 112,294

(27,528) (8,000) 74,486 38,958

$9.51 $2.42 $3.85 $4.23

0.0% 0.0%

256,392 134,384 1,510,313 1,901,089

9.4% 14.7% 8.5% 8.9%

10.0% 13.4% 7.6% 8.2%

16,171 (11,356) (155,601) (150,786)

(13,153) (11,356) (258,920) (283,429)

$7.57 $3.42 $4.74 $5.07

12.7% 13.8% 15.5% 15.2%

0.4% 0.3%

363,737 1,804,789 12,045,175 14,213,701

12.7% 13.8% 15.9% 15.5%

13.3% 13.7% 15.9% 15.5%

17,360 (14,190) (46,496) (43,326)

21,325 (19,903) (699,531) (698,109)

$6.43 $2.62 $3.01 $3.01

NORTH CENTRAL ATLANTA IND. 7,784,526 Flex 222 Shallow-Bay 139 5,411,680 Warehouse 345 13,374,075 Total 706 26,570,281

17.8% 8.9% 11.4% 12.8%

0.7% 0.3% 0.2% 0.3%

1,439,349 497,488 1,544,576 3,481,413

18.5% 9.2% 11.5% 13.1%

19.0% 9.8% 11.0% 13.1%

42,513 34,571 (71,946) 5,138

(53,164) 143,872 62,771 153,479

NORTHEAST ATLANTA IND. Flex 626 18,003,692 Shallow-Bay 471 23,750,121 Warehouse 1,610 127,438,222 Total 2,707 169,192,035

19.3% 16.1% 13.5% 14.5%

0.6% 0.1% 0.4% 0.4%

3,570,351 3,845,238 17,693,320 25,108,909

19.8% 16.2% 13.9% 14.8%

19.1% 16.5% 14.0% 14.9%

(133,558) 77,987 183,595 128,024

(206,248) 170,653 844,829 809,234

NORTHWEST ATLANTA IND. Flex 299 9,543,395 Shallow-Bay 217 9,330,333 Warehouse 767 40,972,934 Total 1,283 59,846,662

12.2% 11.7% 14.1% 13.4%

1.4% 0.3% 0.4%

1,289,802 1,090,608 5,875,303 8,255,713

13.5% 11.7% 14.3% 13.8%

13.9% 14.0% 13.8% 13.8%

40,250 212,755 (227,475) 25,530

87,640 243,637 206,064 537,341

$9.00 $4.09 $3.53 $3.92

SNAPFINGER / I-20 EAST IND. Flex 117 2,801,497 Shallow-Bay 101 4,646,685 Warehouse 423 35,864,100 Total 641 43,312,282

8.4% 11.9% 10.5% 10.5%

234,795 554,174 3,772,226 4,561,195

8.4% 11.9% 10.5% 10.5%

7.7% 12.4% 10.3% 10.4%

(19,600) 24,243 (80,274) (75,631)

(17,108) (31,144) (118,719) (166,971)

$4.15 $2.51 $3.06 $3.08

SOUTH ATLANTA IND. Flex 199 Shallow-Bay 226 Warehouse 1,084 Total 1,509

4,628,492 13,825,877 125,000,908 143,455,277

8.7% 17.8% 14.0% 14.2%

1.1% 1.0%

404,023 2,465,797 18,931,039 21,800,859

8.7% 17.8% 15.1% 15.2%

8.6% 15.9% 15.1% 15.0%

(6,978) (269,971) (7,021) (283,970)

(2,711) (306,446) 2,022,384 1,713,227

3,408,270 7,160,820 16,120,268 26,689,358

20.7% 20.6% 9.1% 13.7%

0.1% 0.0%

705,127 1,482,117 1,468,950 3,656,194

20.7% 20.7% 9.1% 13.7%

21.5% 18.9% 9.0% 13.3%

28,164 (126,280) (11,440) (109,556)

41,979 (72,957) 65,147 34,169

ATLANTA MARKET GRAND TOTAL Flex 1,884 54,749,993 Shallow-Bay 1,632 79,714,656 Warehouse 5,828 463,540,852 Total 9,344 598,005,501

15.0% 14.9% 13.3% 13.6%

0.5% 0.0% 0.5% 0.4%

8,481,369 11,946,095 63,882,620 84,310,084

15.5% 15.0% 13.8% 14.1%

15.5% 14.9% 13.7% 14.0%

4,786 (72,241) (324,828) (392,283)

(168,968) 108,356 2,198,511 2,137,899

0.4% 0.5% 0.5% 0.5% 0.5%

84,310,084 83,917,801 84,815,760 85,997,098 85,497,157

14.1% 14.0% 14.2% 14.4% 14.4%

14.0% 14.2% 14.4% 14.4% 14.3%

(392,283) 2,530,182 1,181,338 498,809 1,124,868

2,137,899 2,530,182 1,065,618 (115,720) (614,529)

STONE MOUNTAIN IND. Flex 135 Shallow-Bay 168 Warehouse 309 Total 612

TOTAL VCY SF

ABSORPTION

482,223 482,223

1,150,000 1,150,000

100,500 100,500

$8.58 $6.37 $5.22 $6.40

204,250 204,250

$7.53 $3.88 $3.39 $3.70

470,006 470,006

$7.43 $3.15 $2.82 $2.88

$5.72 $3.54 $3.03 $3.52

1,632,223 1,632,223

774,756 774,756

$7.29 $3.56 $3.17 $3.42

1,632,223 1,632,223 2,707,515 2,707,515 1,708,765

774,756 774,756 2,041,229 2,041,229 2,557,756

$3.42 $3.43 $3.45 $3.46 $3.51

QUARTERLY COMPARISONS AND TOTALS QUARTERLY COMPARISON AND TOTALS Q2-11 Q1-11 Q4-10 Q3-10 Q2-10

9,344 9,344 9,342 9,342 9,340

598,005,501 598,005,501 596,373,278 596,373,278 595,374,528

13.6% 13.6% 13.8% 13.9% 13.9%

NOTE: STATISTICAL SET INCLUDES ALL INDUSTRIAL PROPERTIES 10,000 SF AND UP, EXCLUDING HEAVY MANUFACTURING PROPERTIES. WHILE COSTAR ATTEMPTS TO PROVIDE THE MOST ACCURATE DATA AT THE END OF EVERY QUARTER, REVISIONS ARE MADE THROUGHOUT THE YEAR ACCOUNTING FOR DISCREPANCIES IN PAST REPORTING.

1,632,223 998,750 1,708,765

SOURCE: COSTAR PROPERTY, COLLIERS RESEARCH

COLLIERS INTERNATIONAL |

P. 3

MARKET REPORT | Q2 2011 | INDUSTRIAL | ATLANTA

CONSTRUCTION

RENTAL RATES & CONCESSIONS

•

There were no industrial deliveries in the second quarter.

•

Build-to-suits continue to be the only major construction currently taking place in Atlanta. SANY America’s 409,006 SF distribution facility should be completed in the third quarter.

SALES ACTIVITY

The status quo is expected to remain in regards to spec industrial development; however, the market could see more build-to-suits go under construction by the end of the year.

•

512 offices in 61 countries on 6 continents

For the 12th consecutive quarter, the average industrial rental rate in Atlanta decreased. Though the most recent drops have been minimal, rents have yet to bottom out.

•

Despite more investment transactions, second quarter sales volume and square feet sold were much less compared to first quarter.

•

Industrial sales activity is picking up. Recent portfolio sales will boost YTD sales volume.

United States: 125 Canada: 38 Latin America: 18 Asia Pacific: 214 EMEA: 117 •

$1.5 billion in annual revenue

• Over 2.2 billion square feet under

management

CONSTRUCTION ACTIVITY (100,000 SF+)

• Over 13,000 professionals

PROPERTY ADDRESS

SUBMARKET

SIZE (SF)

DELIVERY DATE

318 Cooper Circle

South Atlanta Ind

409,006

Third Quarter 2011

FedEx BTS - 6271 Atlantic Blvd.

Northeast Atlanta Ind

204,250

Third Quarter 2012

UNITED STATES:

3200 Webb Bridge Rd.

North Central Atlanta Ind

100,500

Fourth Quarter 2011

Atlanta Mike Spears SIOR Senior VP | Colliers Manager Two Midtown Plaza | Suite 1100 1349 West Peachtree Street, NE Atlanta, Georgia, 30309 TEL +1 404 888 9000 FAX +1 404 870 2845

Canton GAINESVILLE Cumming

CHEROKEE CO. F FULTON CO. F FORSYTH CO.

Allatona Lake

son

Lake Lanier

Woodstock

FO RS FU

Mountain Park

CHEROKEE CO.

Acworth

H YT O LT

OW CO.

Alpharetta

CO . CO .

Brase

NORTHEAST ATLANTA

e hooch e tac

Cha t

PAULDING CO. COBB CO.

NORTHWEST ATLANTA

INDUSTRIAL SUBMARKETS

Buford

HA GW INN LL CO . ETT CO .

Sugar Hill

NORTH CENTRAL ATLANTA

Rive r

BARTOW CO. CHEROKEE CO.

ersville

Roswell

Duluth

316 CO BB FU LT CO O . N CO .

MARIETTA

Lawrenceville DORAVILLE Norcross

CHAMBLEE SMYRNA

ATLANTA

DECATUR Avondale Estates

SNAPFINGER I-20 EAST

att

ho ac

CO .

R iv

ch e

glasville

EAST POINT COLLEGE PARK HAPEVILLE

DEKALB HENRY

Hartsfield-Jackson International Airport

CLAYTON CO.

Union City Fairburn

FULTON CO. COWETA CO.

Palmetto

. ON CO FULT CO. TTE FAYE

675

CO. CO.

W AL TO N

CO .

Lithonia

Conyers Covington RO C NE KDA WT LE ON CO CO . .

I-20 WEST / FULTON INDUSTRIAL

Snellville

STONE MOUNTAIN Stone Clarkston INDUSTRIAL Mountain

DE KALB RO CO CK . DA LE CO .

COBB CO. DOUGLAS CO.

GW IN DE NE KA TT LB C CO O. .

CENTRAL ATLANTA

G W IN NE TT

CHATTAHOOCHEE INDUSTRIAL

Austell

PAULDING CO.

DEKALB CO. FULTON CO.

Powder Springs

FOREST PARK Riverdale

Stockbridge

SOUTH ATLANTA

The Atlanta industrial market consists of nine submarkets. They include Central Atlanta, Chattahoochee Industrial, I-20 West/Fulton Industrial, North Central Atlanta, Northeast Atlanta, Northwest Atlanta, Snapfinger/I-20 East, South Atlanta and Stone Mountain Industrial. The major interstates in the region include: I-75, I-85, I-285, I-575, I-985, I-675 and I-20. Georgia 400 and US 316 also play important roles to Atlanta’s transportation system.

RESEARCHER: Atlanta Scott Amoson Director of Research Two Midtown Plaza | Suite 1100 1349 West Peachtree Street, NE Atlanta, Georgia, 30309 TEL +1 404 877 9286 FAX +1 404 870 2845

Jonesboro

McDonough

nan

BU TT S

CO .

HENRY CO. CLAYTON CO.

Fayetteville

This market report is a research document of Colliers International. Information herein has been deemed reliable and no representation is made as to the accuracy thereof. Colliers International-Atlanta, Inc., and certain of its subsidiaries, is an independently owned and operated business and a member firm of Colliers International Property Consultants, an affiliation of independent companies with over 512 offices throughout more than 61 countries worldwide.

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