Atlanta's Retail Market Slightly Improved in 2012, Yet Rental Rates Remain Flat

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With 465,000 square feet of absorption in 2012, Atlanta's community and neighborhood retail centers saw an improvement over 2011, when there was a negative absorption of 50,000 square feet, according to Reis, Inc. in New York. But this improvement was considered weak, not enough to help boost asking rental rates and lower vacancy rates significantly in the metro.

"Landlords don't want to push rents too much," until absorption levels of retail space are higher and vacancy levels drop more, says Ryan Severino, senior economist at Reis. The point at which rents will go up, because the vacancy rates have come down enough and absorption levels have risen enough, is different for each market, he says. "It is a complicated thing to (determine) where the equilibrium is for each market, "says Severino.  Furthermore, he says that it is subjective and "depends on whose data sets you are looking at," he says.

"No one (retail market) came through unscathed," during the recession, says Severino. "In Atlanta, vacancy rates spiked to 14.5%, which is well above where you've seen the market historically," he says. As of the end of 2012, Atlanta's  vacancy rate only came down to 14%  This compares to the 6% range seen during the 1990s in Atlanta, says Severino, to illustrate how much further the retail market needs to go before it reaches a full recovery.

Things don't look much better at the national level.  According to a fourth quarter 2012 national retail report by Reis, "With retail sales struggling, even during the mighty holiday shopping season, demand for neighborhood and community center space remains at low levels." During the fourth quarter, 2.3 million square feet were absorbed, an increase of roughly 60% over third quarter 2012, when only 1.5 million square feet were absorbed, but a decrease from the 4.1 million square feet that were absorbed during fourth quarter 2011, according to Reis. This represents an approximately 45% decrease in the amount of square feet absorbed in fourth quarter of 2012 compared to fourth quarter 2011. Although fourth quarter 2012 was the sixth consecutive quarter of positive net absorption, demand remains very weak, according to Reis.

Completion of new retail space nationally remained at near record lows during fourth quarter 2012, according to the Reis report. Only 915,000 square feet were delivered during the quarter, just slightly more than the 723,000 square feet delivered during third quarter 2012. However, this was roughly 69% less than the nearly 3 million square feet of retail space that were delivered in fourth quarter 2011.

Furthermore, 915,000 square feet is the fifth lowest figure on record since Reis began tracking quarterly data in 1999. The 915,000 square feet is the equivalent of only one or two medium-sized shopping centers, according to Reis.