Retail Research

Market Report Second Half 2018

Atlanta Metro Area

Retail Development Moves to Suburbs;

Rents Soar Amid Booming Economy Retail 2018 Outlook

Corporations flock to Atlanta; household formation surges 1.4 million sq. ft. Construction:
as retailers flourish. Following the rapid growth of the auto This year, construction declines
will be completed
industry in the metro, numerous auto-supply chain and advanced from the 2.8 million square feet
manufacturing firms have established local operations. The brought on in 2017 to 1.4 million
combination of these industries in addition to the existing large square feet as builders focus on
corporations in the metro has prompted a sharp secular uptick suburban locations.
in local growth. The newly hired workers are forming households
throughout the area, accelerating demand for necessity and 50 basis point Vacancy:
specialty retailers. As a result, the vacancy rate has slid to the Vacancy slides 50 basis points
decrease in vacancy
lowest level of the current cycle, set to reach the mid-5 percent to 5.5 percent as net absorp-
band by year end. The exceptional tightness in the market is tion nearly doubles new supply
starting to foster more robust gains in the average asking rent, growth, particularly in the north-
particularly in the northern suburbs of the city, where rent increases ern suburbs of the city.
can reach the double digits.
5.5% increase Rents:
Suburban locations lead slower pipeline. Strong net migration The average asking rent rises to
in asking rents
and household formation are propelling retail sales growth above $15.55 per square foot after a
the national average, prompting a wide slate of new retail options, 4.7 percent increase in 2017.
even as the pipeline shrinks by half. The majority of supply growth
will be located in the suburbs of the city, particularly in Gwinnett
County, where the 350,000-square-foot Snellville Exchange
will headline development. Rounding out the pipeline inside the
city limits, Larkin on Memorial will provide numerous options to
shoppers just to the east of Downtown Atlanta.

Investment Trends
• A combination of multiple corporate relocations and strong
Local Retail Yield Trends in-migration are drawing capital sources from New York and
Retail Cap Rate 10-Year Treasury Rate California to Atlanta. They are seeking well-positioned shopping
centers, typically with a grocery anchor or other community
12%
staple. Properties in Gwinnett and Cobb County remain the
most active deal locations.
Average Rate

9%
• Investors in the $1 million to $10 million price tranche are
6%
dominating transaction velocity in Atlanta. Many buyers are
3%
attracted to relatively higher cap rates in the metro, particularly at
multi-tenant structures with returns in the mid-7 percent range.
0%
00 02 04 06 08 10 12 14 16 18* • Despite a recent weakening in prices overall, net-leased assets
with cap rates in the high-6 percent area are drawing buyers
seeking to exchange out of more management-intensive
properties. Well-located pharmacies and fast-food restaurants
still garner exceptionally low cap rates due to their corporate
credit backing and national presence.
* Cap rates trailing 12 months through 2Q18; 10-Year Treasury up to June 29.
Sources: CoStar Group, Inc.; Real Capital Analytics
Atlanta
2Q18 - 12-MONTH TREND
Employment vs. Retail Sales Trends EMPLOYMENT:
Employment Growth Retail Sales Growth 1.8% increase in total employment Y-O-Y
10%
Year-over-Year Change

• Approximately 48,900 positions were created in Atlanta

5% during the past 12 months, cutting unemployment 60 ba-
sis points to 3.9 percent in June.
0%
• The trade, transportation and utilities sector added
-5% 18,600 positions during the previous four quarters, the
most among sectors. Leisure and hospitality followed
-10% with 10,800 positions.
08 09 10 11 12 13 14 15 16 17 18*

Retail Completions CONSTRUCTION:

Completions Absorption
1.45 million square feet completed Y-O-Y
9,000
Square Feet (thousands)

• Deliveries shrank dramatically over the past year, falling

6,000 from more than 2.9 million square feet to 1.45 million
square feet.
3,000
• The largest project currently underway is the Snellville
0 Exchange in Lawrenceville. The 350,000-square-foot
shopping center adds to a string of retail centers located
-3,000 along Highway 124.
08 09 10 11 12 13 14 15 16 17 18*

Vacancy Rate Trends VACANCY:

Metro United States 20 basis point decrease in vacancy Y-O-Y
12%
• Net absorption of more than 2.2 million square feet of
9% retail space contracted vacancy by 20 basis points to
Vacancy Rate

5.9 percent.
6%
• The Central Atlanta submarket posted the largest decline
in vacancy, falling 130 basis points to 3.1 percent. Net
3%
absorption surged above 200,000 square feet, while
0% development reached 47,000 square feet.
08 09 10 11 12 13 14 15 16 17 18*

Asking Rent Trends RENTS:

Metro United States 9.3% increase in the average asking rent Y-O-Y
Year-over-Year Change

8%
• The average asking rent surged 9.3 percent to $15.48
4% per square foot over the past year as Gwinnett and North
Cobb County posted gains in excess of 15 percent.
0%
• Despite recording the highest vacancy increase over the
-4% past year, Coweta County also posted one of the largest
increases in the average asking rent, soaring 26.3 percent
-8% to $17.87 per square foot.
08 09 10 11 12 13 14 15 16 17 18*

* Forecast
 Retail Research | Market Report

DEMOGRAPHIC HIGHLIGHTS

2018 JOB GROWTH* FIVE-YEAR POPULATION GROWTH** FIVE-YEAR HOUSEHOLD GROWTH**

Metro 2.0% 620,000 or 2.0% Annual Growth 245,000 or 2.2% Annual Growth
U.S. Average 1.6% U.S. 0.7% Annual Growth U.S. 1.1% Annual Growth

2Q18 RETAIL SALES PER MONTH

$3,937 Per Household

U.S. $3,925
2Q18 MEDIAN HOUSEHOLD INCOME RETAIL SALES FORECAST**

Metro $64,431 $1,444 Per Person Metro 25.2%

U.S. Median $60,686 U.S. $1,507 U.S. 20%

* FORECAST **2017-2022

Lowest Vacancy Rates 2Q18 Competition Heightens For Retail Properties;

Single-Tenant Prices Climb Higher
Y-O-Y
Vacancy Asking Y-O-Y %
Submarket
Rate
Basis Point
Rent Change • Multi-Tenant: A slower pace of deal flow accompa-
Change
nied an 8 percent rise in the average price per square
foot to $220. Buyers were most active in Gwinnett and
North Cobb County.
Central Atlanta 3.1% -130 $22.82 -1.4%
SUBMARKET TRENDS

• Single-Tenant: Transaction volume was roughly un-

Coweta County 4.0% 110 $17.87 26.3% changed during the past 12 months, while the average
SALES TRENDS

price per square foot on closed deals fell 4.7 percent

Buckhead 4.2% -30 $29.78 -0.3% to $351.
West Metropolitan 5.0% -80 $11.32 11.9% Outlook: Accelerating prices and cap rates in the mid-8
percent return area will draw regional and national capital
Central Perimeter 5.1% 10 $27.56 24.0% to well-positioned shopping centers.

North Cobb 5.2% -60 $14.73 19.0%

Price Per Square Foot Trends
South Cobb 5.3% 10 $16.98 13.4% Single-Tenant Multi-Tenant
Year-over-Year Appreciation

NE Atlanta Outlying 5.8% -20 $14.85 29.1% 20%

10%
Gwinnett 6.1% -40 $14.08 15.5%

0%
Georgia 400 6.3% -80 $16.13 1.1%

-10%
Dekalb 6.5% -50 $14.15 2.5%

-20%
Overall Metro 5.9% -20 $15.48 9.3%
08 09 10 11 12 13 14 15 16 17 18*

* Trailing 12 months through 2Q18 over previous time period

Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
Retail Research | Market Report

10-Year Treasury vs. 2-Year Treasury By DAVID SHILLINGTON, President,

Yield Spread Tightens Marcus & Millichap Capital Corporation
10-Year Treasury 2-Year Treasury
Fed raises benchmark rate, plans for additional increases.
8%
230 bps

The Federal Reserve recently increased the federal funds rate by

6% 280 bps 25 basis points, lifting the overnight lending rate to 2 percent at the

260 bps
conclusion of its September meeting. The Fed noted inflation has
Rate

20 bps
4% broadly reached its target, while household spending and corporate
investment remain robust. The Fed indicated an additional rate
2%

CAPITAL MARKETS
hike this year and projects as many as three increases in 2019.
0%
04 06 08 10 12 14 16 18* Lending costs rise alongside Fed rate increase. As the Fed
lifts rates, lenders have been tightening margins to compete for
loans. Despite these efforts, borrowing costs remain on an upward
Retail Mortgage Originations by Lender trajectory, which is tightening returns and pushing some investors
to seek greater yields in secondary markets. However, though
100%
buyers may try to push back on pricing due to increased loan costs,
some sellers remain convinced that the strong economy and sturdy
75% NOI performance substantiate aggressive pricing and a widening
National Bank
Percent of Total

International Bank expectation gap is the result. If interest rates rapidly surge upward,
50% Regional/Local Bank
CMBS
this gap could quickly widen, slowing transaction activity.
Insurance
25% Financial The capital markets environment remains competitive. As the
Private/Other
Fed tightens policy, global investors have been acquiring Treasurys
0% in order to capture a considerable yield premium, keeping the
13 14 15 16 17
10-year Treasury near 3 percent. Portfolio lenders are providing
debt for retail assets, with leverage typically capped at 60 to 65
* Through Sept. 26 percent. The sector has become increasingly nuanced, with deals
Sources: CoStar Group, Inc.; Real Capital Analytics more scrutinized due to e-commerce competition. Ten-year loan
structures will range between 4.95 and 5.25 percent, depending
on tenancy, location and sponsorship. Continued consumer
National Retail Group spending underpins U.S. growth, supporting retail demand and
driving a 10-basis-point decline in vacancy to 4.9 percent this year.
Visit http://www.MarcusMillichap.com/Retail

Scott M. Holmes
Senior Vice President, National Director | National Retail Group
Tel: (602) 687-6700 | scott.holmes@marcusmillichap.com

Prepared and edited by

Atlanta Office:
Aaron Martens Michael Fasano First Vice President/Regional Manager
Research Analyst | Research Services 1100 Abernathy Road N.E., Bldg. 500, Suite 600
Atlanta, GA 30328
For information on national retail trends, contact: (678) 808-2700 | michael.fasano@marcusmillichap.com
John Chang
Senior Vice President, National Director | Research Services
Tel: (602) 707-9700
john.chang@marcusmillichap.com

Price: $250

© Marcus & Millichap 2018 | www.MarcusMillichap.com

The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no
representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment
growth is calculated based on the last month of the quarter/year. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. This is not intend-
ed to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered
as investment advice.
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; Moody’s Analytics; Real Capital Analytics; TWR/Dodge Pipeline;
U.S. Census Bureau