The U.S. economy and property markets withstood a very turbulent 2016, and they are positioned to perform well in 2017. Even before the November election, the U.S. economy was shifting into a higher gear. Real GDP expanded at a 3.5% annual rate in the third quarter of 2016—the strongest growth rate registered in two years and more than triple the rate of growth observed in the first half of last year. Likewise, the latest data released in November and December on wage growth, confidence and consumer spending are mostly indicative of an economy that is heating up. As we tally data for the fourth quarter of 2016, property markets are on track to record another year of strengthening leasing fundamentals. Regional variations aside, most markets and product types will register declining vacancy, positive absorption and accelerating rent growth in 2016. Indeed, the latest economic data signals a strong start to the New Year.
Metro Atlanta’s commercial real estate market reflects those positive national trends.
Multifamily, which has been the darling of commercial real estate for the past several years, experienced an occupancy rate of 94.7 percent in the fourth quarter, with average effective rents reaching $1,104. The metro’s occupancy rate has remained stable in the 95 percent range, while concessions declined in the third quarter by just under 3 percent over the prior period. Concessions have been prevalent in markets with robust development pipelines such as Atlanta, Charlotte and Nashville, as owners use concessions as a tool to shorten stabilization periods.
Additionally, industrial leasing activity for 2016 increased over 1 million square feet from 2015 to 21.9 million square feet with 3.4 million square feet of leasing activity in the fourth quarter. Variety Wholesalers signed the year’s largest lease for 1.4 million square feet at 60 Herring Road in Newnan, Georgia, followed by Williams-Sonoma’s lease of 1.1 million square feet at the Braselton Commerce Center.
Atlanta’s office market has experienced positive activity as well. Coda Tech Square in Midtown, which broke ground in December, is the largest spec office project under construction at 760,000 square feet, followed by the 500,000-square-foot Three Alliance in Buckhead, which is expected to be completed during the first quarter of 2017. Overall, 4.0 million square feet of office space is under construction, 1.7 million square feet of which is pre-leased. On another positive note, average asking rates finished the year at $23.39 per square foot (psf), breaking the third-quarter record of $23.38 psf.
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