Consumer spending propels Georgia warehouse boom


A click of a mouse on Amazon.com sets in motion a chain of events that leads to a box on your doorstep. A clerk at Kroger scans a barcode and inputs a restock order for frozen hamburger patties or ice cream sandwiches.

Such everyday actions are fueling one of the biggest growth sectors in Atlanta real estate: warehouses.

Sprawling, low-rise warehouses — sometimes called “distribution hubs” or “fulfillment centers” — are springing up around the region to serve as key links in the chain that connects consumers with the things they want.

In 2015, retailers, consumer goods companies and other industrial tenants filled 17.5 million square feet of industrial space in metro Atlanta — the most in one year since the late 1990s, according to CBRE Research. Growth in 2014 was nearly as robust.

In the first quarter of this year, more new warehouse space opened in metro Atlanta than at any time since 2006. That 6.2 million new square feet of space, and the wave of construction over the past few years, is an economic barometer reflecting consumer buying and job growth.

The Atlanta region is the ninth-largest metro area, but fourth in industrial space, according to CBRE.

Some of the newer space, including an Amazon facility and mammoth new Walmart and Home Depot warehouses, was built primarily to serve online shopping.

The boom is triggering some concern that too much space has come to market at once. In Savannah, the state’s No. 2 warehouse market dependent upon the port, the surge in warehouse construction raises similar worries.

About 2.2 million square feet of this year’s new space in Atlanta opened without a tenant, as the rambunctious pace of leasing activity dipped a bit from January to March.

Dan Wagner, CBRE Research’s regional research manager, said he doesn’t foresee a dangerous glut.

“I wouldn’t necessarily say that developers are hitting the brakes, but I do think the market has to have a natural pause or a natural break in development to see how well that vacant space gets occupied,” he added.

Developers are counting on the continued Southern migration, the expansion of the Panama Canal and the deepening of the Savannah port to sustain the development surge. Much of the cargo coming through Savannah winds up in metro Atlanta warehouses for distribution here and across the Southeast.

Wagner said three to five blue chip firms seeking 300,000 square feet or more are currently looking for space — fewer than in the past year or two — as demand for bigger spaces remains strong.

Meanwhile, Wagner said he’s seen a rise in mid-sized firms needing smaller spaces. That’s a positive growth sign, he said.

Expansion along I-85

On Tuesday, Gov. Nathan Deal’s office announced thredUP, an online consignment store for women and children’s lightly-used clothing, will establish a distribution center in Gwinnett County. The expansion is expected to include more than 300 jobs.

The company plans to upgrade an existing building on Breckinridge Boulevard, and the Duluth project is part of its plans to open distribution centers in strategic areas for faster shipping to customers, the company said in a news release.

In the first quarter, homeware giant Williams Sonoma announced a more than 1 million square foot lease for a new distribution center near Braselton.

Roughly 33,000 employees worked in Georgia warehouses last year, according to the Bureau of Labor Statistics, a 15 percent surge over 2014. And they make about $40,000 a year, up 2.3 percent from the year before.

Metro Atlanta is buoyed by a globally connected airport and a network of highways and rail lines, as well as the burgeoning ports of Savannah and Brunswick.

When the economy went into meltdown, it didn’t just hurt the housing market and retail sectors, it also pummeled the industrial and warehousing sectors. But Atlanta’s record glut of vacancy has been more than cut in half while the region has added tens of millions of new square feet of space.

Steve Dils, managing director in Atlanta for real estate services firm Avison Young, said the region remains cheap for rent and development costs while being a hub for the Sun Belt. New spec warehouses are leasing fast, but so too are older buildings that typically lure smaller companies.

Coastal connection

Savannah’s robust warehouse industry owes everything to the port — the nation’s fourth busiest — and its proximity to the Atlanta market. Only the port of New York-New Jersey handles more containerized cargo on the East Coast than Savannah’s Garden City Terminal, which is often the first Eastern seaboard stop for ships traversing the Panama Canal.

The soon-to-expand Panama Canal and the $700 million-plus deepening project underway on the Savannah River may translate into larger ships with more cargo.

“There’s a confluence of events that’s helping Savannah grow,” said Griff Lynch, incoming executive director of the ports of Savannah and Brunswick. “Carriers are increasing their capacity to the East Coast and that means ocean-going rates from Asia will become more competitive and we’ll deliver more containers to not only Savannah, but to Atlanta, Memphis and beyond.”

Perhaps.

Many retailers, burned by last year’s West Coast port strike, have already moved their distribution networks to the East Coast. There’s no guarantee more cargo will alight at Savannah in the holds of bigger ships. And West Coast ports, and the railroads that service them, will fight to hold on to Asian trade that currently offloads in Los Angeles, Long Beach or Tacoma before heading east.

Still, Lynch expects a 4 to 5 percent traffic gain because of the Panama Canal expansion, which has made warehouse developers in Savannah bullish. In the first quarter of this year, Savannah’s vacancy rate stood at measly 3.2 percent, according to Colliers International, a level deemed “dangerously low” by Trip Tollison, president of the Savannah Economic Development Authority.

Target and IKEA recently built warehouses, and a few spec projects are going up with owners certain they’ll find tenants.

“As metro Atlanta grows, our warehouse distribution capability grows simply because we’re the closest port to Atlanta,” Tollison said. “We’re 100 miles closer to metro Atlanta than Charleston, our main competitor. These are very exciting times for sure.”


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