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In Depth: COMMERCIAL REAL ESTATE
December 3, 2004
Developers upbeat on 2005 industrial market

Atlanta's industrial developers are one bullish bunch when it comes to 2005. Some are encouraged by signs of increasing demand; others are excited at the prospect of landing one of the major space users looking for newer, bigger and better facilities.

And then there are others who just seem to be tired of waiting for a definitive turnaround in the economy, and are chomping at the bit to bring new projects out of the ground next year no matter what.

"I think there's a perception among a lot of people that the market has got to come back next year," said Solution Property Group LLC partner Eben Hardie. Members of this group have waited as long as they can for the economy and the industrial marketplace to make a full recovery from the downturn of the early 2000s, he noted, "and they aren't going to wait any more."

According to McDonald Development Co. President John McDonald, there's ample cause for optimism.

"There has been an increase in leasing activity, particularly among companies requiring 20,000 to 100,000 square feet in multitenant facilities. After months of delaying decisions to expand, these tenants are executing leases and moving into larger facilities," a trend that should continue into 2005, McDonald said.

After a number of projects in 2004, including a 226,000-square-foot (expandable to 740,000) build-to-suit for electronics/appliance retailer BrandsMart USA at his SouthPark development in Clayton County, McDonald has several new speculative Atlanta-area buildings coming out of the ground in 2005. These include 400,000- (expandable to 620,000) and 213,000-square-foot warehouse buildings at SouthPark; two warehouses totaling 213,000 square feet at SouthChase, also in Clayton County; and a 300,000-square-foot warehouse at WestLake, a park in the Fulton Industrial District.

For the most part, said Carter Executive Vice President of Development Trent Germano, it's demand from large space users retooling their distribution networks that's driving new warehouse development in Atlanta markets such as the Interstate 20 West corridor. Catellus Development Corp. (NYSE: CDX), IDI, Opus South Corp. and First Industrial Realty Trust Inc. (NYSE: FR) all have projects under way there, with Carter ready to break ground on a 540,000-square-foot spec warehouse at its 94-acre New Manchester, an I-20 West project where recent deals include Mundelein, Ill.-based Medline Industries Inc.'s purchase of a 448,312-square-foot warehouse at New Manchester.

"A lot of larger users are consolidating their distribution networks, distributing from fewer, but larger, locations," Germano said.

In addition to the BrandsMart deal at SouthPark, major companies taking big metro Atlanta boxes recently have included The Clorox Co., with a 607,000-square-foot build-to-suit at Duke Realty Corp.'s Camp Creek Business Centre; and Del Monte Foods Co., with a 708,000-square-foot build-to-suit at Majestic Airport Center II. Meanwhile, potential big-box deals floating around in the market as of press time include those by Staples Inc. and sports drink-maker Gatorade.

A spate of recent major announcements has the effect of generating demand for industrial product, according to Forrest Robinson, president of the industrial division of Cousins Properties Inc. (NYSE: CUZ).

Announcements such as Kubota Manufacturing of America's $65 million, 400,000-square-foot manufacturing facility in Jackson County, Honda's $100 million automatic transmission manufacturing plant in Tallapoosa and FedEx Ground's 260,000-square-foot distribution facility in Kennesaw "all generate positive activity for the marketplace," Robinson said.

The need to have a building in the marketplace in the early stages of any recovery is solid motivation for developers, even when they realize that everybody they know also is guided by the same strategy.

After all, "You don't want to be the one out there trying to find land after 18 months of a good market," said Steve Williams, a partner with Grove Street Partners, which has an April 2005 start planned on a 500,000-square-foot (expandable to 600,000) warehouse facility in the I-85 North corridor's Jackson County, close to the site of an 845,000-square-foot Toyota air conditioner compressor manufacturing plant slated to open in late 2005.

Grove Street is far from being the only developer with big-box product in this corridor. Some five miles south along I-85 in Gwinnett County, Solution Property Group has a 545,000-square-foot/ all-spec warehouse building set for June delivery in Braselton. This building joins a 505,000-square-foot, 100 percent-available warehouse building completed last July in Braselton by Southeast Investment Properties LLC. Southeast also has 498,000- and 189,000-square-foot buildings under way at its 260-acre Buford Distribution Center project near the Mall of Georgia. All of this is in addition to a 646,380-square-foot building slated for first quarter 2005 delivery by IDI at Hamilton Mill Business Center.

"There is an absurd amount of space coming on line," said Solution Property Group's Hardie. "And it is absurd to think that there will be five or six big-box deals coming up [the] I-85 [corridor] in the next 12 months," he said.

You gotta believe, according to Williams. Especially if you are a developer.

"But if you're a developer and you're not optimistic, you're not going to do very well in this business," he said, adding: "We've been in a pretty lousy market for about four years now, and everybody's banking on it coming back -- like it always has."