Georgia Real Estate on My Mind
For commercial real estate in Georgia the theme has been growth, though concerns about overbuilding remain for the state’s capital and largest city, Atlanta, an economic hub of the Southeast. Brokers are guardedly optimistic about the prospects of various property segments in the Peach State.
"Continued economic expansion has fueled strong retail activity throughout the Southeast," reports Philip Hager, CCIM, of Trammell Crow’s Atlanta office. "The Atlanta retail market, as well as retail markets throughout Georgia, have benefited greatly from an expanding residential base, which comes as a result of the healthy, diverse economy in this region."
If job growth attracting new people to the market has been the fundamental positive for retail real estate, transportation and infrastructure issues have been its fundamental negative, Hager says. "A lack of physical barriers to growth has caused markets like Atlanta to become the sprawling metropolises that are found throughout the Sunbelt," he says. "A lack of infrastructure — especially adequate sewer capacity — is quickly becoming the break pedal that county legislators are using to halt rezonings and further sprawl."
As new development outpaced demand levels for the first half of 1998, Atlanta’s retail vacancy inched to 7.6 percent at midyear 1998 from 7.4 percent at yearend 1997, Hager says. Lease rates vary; high-credit anchor tenants can find locations "in the high single-digit range" psf annually triple net, while smaller tenants pay anywhere from this level "to the high $20 [psf] range," he says. The area’s sales transactions "have been strong over the past few years as inexpensive capital has been plentiful," he says.
Atlanta’s office activity "is very good," and both new and expanding businesses have played a role, notes Andy Bell, CCIM, of Anderson Bell in Atlanta. "Demand is high and supply is low. All the companies I speak with are increasing in size.
"Controlled development should allow our market to remain healthy, subject to the overall economy," Bell says. "One client commented, ÔI hope I haven’t overestimated [the] next two years’ economy.’ I don’t think so."
Annual office lease rates have run $21 psf to $26 psf for class A properties and $15 psf to $22 psf for class B space, he reports. Office sales recently have ranged from $75 psf to $150 psf, and the area has seen both speculative and build-to-suit construction.
Investors mainly have been real estate investment trusts for the big projects and corporate users in smaller buildings, he says.
In Macon, "Our market is fairly active," says Edward A. Walsh, CCIM, of the Summit Group. "Our economy continues on the steady path we have been on for years." Getting office financing, he says, "was pretty easy up until August . Since the conduit market has dried up, the local commercial lenders are filling the void."
Office occupancy rates are steady at 90 percent downtown, he says, and are 80 percent in the suburbs. "Lease rates have risen in the suburban market to $15 psf, full service," annually, he says, but, "These rates could come down with the recent increase in vacancies."
Looking forward, "The multistory product has a tough road ahead," Walsh says. "The single-story and build-to-suit market[s are] still strong."
Atlanta-area multifamily occupancies are above 95 percent, says Michael E. Tompkins, CCIM, of Julian LeCraw, in Atlanta. "Transactions have slowed, however, as a result of the stock market uncertainty and the impact on the REITs. We already have experienced some slowdown. The necessary variables for a stable market remain positive. We can expect steady growth with balanced supply-and-demand ratios."
Nonetheless, "Atlanta remains an exciting market [in which] to do business," he says. "We have surpassed pre-Olympic occupancy rates. The urban submarkets are extremely tight." Lease rates range from 60 cents psf to $1.30 psf, Tompkins says.
In the Macon area, "Slow [and] steady are the words I have used for years in middle Georgia," says Hal Harper, CCIM, of Eberhardt & Barry/Coldwell Banker Commercial in Macon. "The area is never booming nor bust. [There’s] not a lot of speculative building in this market."
Multifamily occupancy is in the low-to-mid 90 percent range, Harper says. "Five years ago, all complexes were at 95 percent to 98 percent. In recent years, percentages have dropped a little due to new construction. Class A lease rates run $7 psf to $7.25 psf per year, class B, $6 psf, and class C, $4 psf to $4.80 psf. In terms of sales, "A lot of smaller rehab projects are selling to local small investors," he says.
In Savannah, "The absorption of the new complexes appears to be good," says Bob Jenkins, CCIM, of Palmer & Cay Properties. "The feel is that the market will dip for a short period then stabilize."
Occupancy is stable and above 90 percent, he says, and three large complexes are being built. "The new construction is from mainly pent-up demand," Jenkins says. "One of Savannah’s problems is lack of suitable land in good areas."
The area’s manufacturing segment is "extremely strong," says William D. Ramsbottom Sr., CCIM, of the Ramsbottom Co. in Macon. "There is basically no manufacturing space available. Warehouse space is [at] about 7 percent vacancy, and the big warehouses of 100,000 sf and above are full."
Lease rates have remained steady over the past four years, at $2 psf to $2.25 psf for metal buildings and $2.25 psf to $3-plus psf for masonry buildings, he says. Sales prices range from $10 psf to $11 psf for metal buildings in the 200,000-sf range; masonry buildings in the 100,000-sf range sell for $15 psf to $16 psf. For smaller properties, 50,000-sf metal buildings go for about $10 psf and masonry buildings for between $13 psf and $14 psf, he says.
"In the middle Georgia market, distribution warehousing will be hot in high-cube space located near I[nterstate]-75 and I-16," he says. "Recently, we have had a number of inquiries for buildings in the 100,000-sf range."
James K. Anderson, CCIM, of MJM in Honolulu minces no words about the economic woes that have impaired the city. "The economy [stinks] here," Anderson says. "We haven’t even been able to find the tunnel — and if we can find the tunnel, there is no assurance there will be a light at the end of it."
Brokers including J. Allen Johnson, CCIM, CRE, of Conduit Exchange in Honolulu, blame an "anti-business attitude on the part of the [local] government," as well as the impact of the Asian economic crisis. "We have had more than 5,000 bankruptcies [in 1998]; companies are downsizing or moving out of the state," Johnson says.
Most of the region’s property segments have been affected.
Honolulu’s retail activity "is not good and is getting worse by the day," Anderson says. "Good locations still command good [lease] rates. However, secondary locations are either empty or on marginal month-to-month rates." What few sales there are "are down substantially from a few years ago," he says.
His vision for Honolulu’s retail future is bleak. "Little [players] will continue to disappear. There are two or three large players who, if they go ahead with announced plans, may force the market into a grossly overbuilt situation that will take years to recover from."
The state of industrial real estate also is in "terrible shape," reports Dennis Wiens, CCIM, of CB Richard Ellis in Honolulu. "Activity has decreased dramatically in the past two years," he says. Wiens expects the decline to continue for the most part. The hot area in industrial could be "high-quality projects, of which there are few," he says.
"Basically there is no multifamily market in Hawaii," Johnson says. "Nearly all multifamily buildings are condominiums. There are a few rental multifamily [properties], but most are in economically disadvantaged areas and don’t change hands often."
Hospitality, a key factor in the state’s economy, also has taken a hit, reports Honolulu broker R. Donald Brough, CCIM. Japan’s economic problems "have had a dramatic effect on the tourism industry here." Several Japanese-owned hotel properties in Hawaii have been foreclosed on and changed hands, Brough says.
Hotel owners and operators "are hoping for a net increase in visitor count from the [continental] U.S. to offset the downturn from Asia, but are hedging their bets by concentrating on ways to increase revenue from existing customers."