MARKET REPORT

RETAIL
Atlanta Metro Area Q2/19
Continued Growth and Strong Fundamentals Draw 2

Investors and Developers to Atlanta Retail 2019 Outlook

Atlanta metro continues growth trend, creating additional need for CONSTRUCTION:
retail space. The job market in Atlanta expanded by approximately 57,000
Retail additions are down 17 percent
positions over the past 12 months. Employment growth paired with the
from 2018 totals. Since 2015, the average
formation of 37,000 new households contributed to an increased need for
retail. Consumer preferences are changing, creating a stronger demand 1.3 million SQ. FT.
will be completed
annual delivery is 1.8 million square feet
of retail space.
for gyms, medical facilities, entertainment venues and restaurants. The
shift is also sparking the development and repurposing of retail formats
that will capitalize on the new demand. While big-box retail continues
to be portrayed by the media in a negative light, there are some national
VACANCY:
tenants that are growing and absorbing the recently vacated space, such as
TJ Maxx, Hobby Lobby, Burlington Coat Factory and Ross. Vacancy will fall 30 basis points to
5.0 percent in 2019. Last year vacancy
Construction focused in areas near recently completed residential de- 30 BASIS POINT
decrease in vacancy
dropped 50 basis points.
velopments. Atlanta is expecting a modest deposit of retail space this year,
Price Per
the lowest annual delivery sinceSquare FootSprings,
2013. Sandy TrendsChamblee and other
areas along the northern perimeter are attracting
Single-Tenant retail development in
Multi-Tenant
response to the recent surge of housing in these submarkets. Average va-
20%
cancy will drop as net absorption outmatches the scheduled completions
RENTS:
Year-over-Year Appreciation

for the eighth consecutive year. The average asking rent climbs to reach
10%
$15.50 per square foot in 2019. Asking
0% 3.1% INCREASE rent growth has averaged 3.0 percent per
in asking rents year since 2015.
-10%

-20%
* 09 10 11 12 13 14 15 16 17 18 19*
Investment Trends
• Class A retail asset deal flow is consistent with the previous period.
Local Retail Yield Trends Class B/C trades are down, particularly on the $1 million to $10 million
Retail Cap Rate 10-Year Treasury Rate assets. Assets priced in the $10 million to $20 million range traded twice
12%
as often than the previous 12-month period.

• Cap rates in the Atlanta metro range depending on the asset makeup
9%
and location. Grocery-anchored assets in strong locations are providing
Average Rate

first-year yields in the low-5 to mid-5 percent range, while power cen-
6%
ters in outlying submarkets can earn cap rates above 8 percent. Since
3% last March, the market average cap rate is 7.0 percent, down 20 basis
points from the previous period.
0%
• Family offices and 1031-exchange buyers have been targeting the
01 03 05 07 09 11 13 15 17 19*
non-core retail assets being sold by some institutional capital sources.
Opportunities for high-net-worth investors and family offices have in-
creased as a result of the lack of institutional buyers actively prospect-
ing the market.

* Cap rates trailing 12 months through 1Q19; 10-year Treasury up to March 29

Sources: CoStar Group, Inc.; Real Capital Analytics
 1Q19 – 12-Month Trend
Price Per Square Foot Trends
Employment vs. Retail Sales Trends
Employment Growth Retail Sales Growth Single-Tenant EMPLOYMENT
Multi-Tenant
10% 20%
2.2% increase in total employment Y-O-Y

Year-over-Year Appreciation
Year-over-Year Change

5% 10% • Since last April, 60,300 jobs have been created in the Atlanta
metro. Over the same previous annual period, the market grew
0% 0% payrolls by 58,900 positions, also a 2.2 percent growth.

-10% • The largest sectors to grow were the educational and health
-5%
services sector, which added approximately 15,000 jobs in the
-20% past 12 months, and the leisure and hospitality sector, which
-10%
09 10 11 12 13 14 15 16 17 18 19* 09added
10 roughly
11 12 14,000
13 14roles.
15 16 17 18 19*

Retail Completions Local Retail Yield Trends

Completions Absorption Retail Cap Rate CONSTRUCTION
10-Year Treasury Rate
9,000
12%
1.6 million square feet completed Y-O-Y
Square Feet (thousands)

6,000
9% • Atlanta retail completions are down 33 percent from the
Average Rate

prior annual period ending in March with approximately 1.6

3,000 6% million square feet delivered. The previous period’s elevated
construction numbers were bolstered by a strong second quarter.
0 3%
• Builders have been active in the Gwinnett submarket, where
-3,000 0% more than 330,000 square feet of retail space has opened since
09 10 11 12 13 14 15 16 17 18 19* March
01 03of last
05 year.
07 09 11 13 15 17 19*

Vacancy Rate Trends

Metro United States VACANCY
12%
50 basis point decrease in vacancy Y-O-Y
9% • Since last March, the average vacancy rate has fallen to 5.2
Vacancy Rate

percent, the lowest vacancy rate posted in more than a decade.

6%
• The North Cobb submarket had the largest annual change in
3% vacancy of the Atlanta submarkets as the average dropped 150
basis points to 3.8 percent in this period.
0%
09 10 11 12 13 14 15 16 17 18 19*

Asking Rent Trends

Metro United States RENTS:
8%
0.1% increase in the average asking rent Y-O-Y
Year-over-Year Change

4% • Over the past four quarters the average rental rate for Atlanta retail
properties has increased by a modest 10 basis points to $15.30 per
0%
square foot. In the previous period, average rents rose 8.1 percent
from $14.14 per square foot in the first quarter of 2017.
-4%
• Multi-tenant average retail rates increased by 1.3 percent to $15.03
-8%
per square foot over the same period. Single-tenant average rental
09 10 11 12 13 14 15 16 17 18 19* rates fell by 0.5 percent in this period to $15.48 per square foot.

*Forecast
Sources: CoStar Group, Inc.; Real Capital Analytics
Demographic Highlights

2019 Job Growth* Five-Year Population Growth** Five-Year Household Growth**

Metro 2.1% 571,100 or 1.8% Annual Growth 231,700 or 2.0% Annual Growth
U.S. Average 1.3% U.S. 0.6% Annual Growth U.S. 1.0% Annual Growth

1Q19 Retail Sales per Month

$3,944 Per Household

U.S. $3,971
1Q19 Median Household Income Retail Sales Forecast**

Metro $67,240 $1,471 Per Person Metro 21.7%

U.S. Median $64,259 U.S. $1,544 U.S. 16.9%
* Forecast ** 2018-2023

SUBMARKET TRENDS SALES TRENDS

Single-Tenant Deal Flow Picks Up;
Lowest Vacancy Rates 1Q19 Cap Rates Slide as Prices Appreciate Across Metro
• Multi-Tenant: Deal flow slowed as private investors were more cau-
Y-O-Y Average
Vacancy Y-O-Y % tious in the marketplace. Initial yields fell 10 basis points, dropping
Submarket Basis Point Asking
Rate Change
Change Rent the average cap rate to 7.8 percent.

• Single-Tenant: Trading increased modestly over the past year ending

Coweta County 2.9% -60 $15.72 1.5%
in March. Average price per foot on these assets rose 7.2 percent to
Buckhead 3.5% 40 $29.35 -0.8% $410, while the average cap rate fell 30 basis points to 6.4 percent.

Outlook: Investors seeking stronger initial yields will continue to scour

Central Atl 3.8% -20 $25.46 6.1% the marketplace for quality multi-tenant retail properties. These assets
provide average first-year returns 80 basis points above the metro aver-
North Cobb 3.8% -150 $15.04 5.8%
age retail cap rate of 7.0 percent.

West Metropolitan 4.2% -30 $11.44 1.7%

Employment vs. Retail Sales Trends Price Per Square Foot Trends
South Cobb 4.9% 0 $14.43 -7.7%
Employment Growth Retail Sales Growth Single-Tenant Multi-Tenant

Gwinnett 10% 5.4% 10 $14.07 1.9% 20%

Year-over-Year Appreciation
Year-over-Year Change

NE Atlanta Outlying5% 5.4% -20 $13.20 -12.6% 10%

Georgia 400 0% 5.5% -80 $18.25 10.9% 0%

Central Perimeter -5% 5.6% 60 $22.16 -20.8% -10%

Overall Metro -10% 5.2% -50 $15.30 0.1% -20%

09 10 11 12 13 14 15 16 17 18 19* 09 10 11 12 13 14 15 16 17 18 19*

* Trailing 12 months through 1Q19 over previous time period

Retail Completions Local Retail
Pricing YieldCoStar
trend sources: Trends
Group, Inc.; Real Capital Analytics

Completions Absorption Retail Cap Rate 10-Year Treasury Rate

9,000
12%
 1Q19* Retail Acquisitions CAPITAL MARKETS
CAPITAL MARKETS
By Buyer Type
By DAVID G. SHILLINGTON, President,
Cross-Border, 34.9%
Other, 2.2% Marcus & Millichap Capital Corporation
• International pressures weigh on domestic outlook; Fed remains
patient. Amid ongoing trade disputes between the U.S. and China
and slowing growth throughout the European economy, the global
Private, 47.2% Equity Fund
& Institutions, 11.9% economic outlook has become more cautious. Market volatility,
combined with muted sentiment, has sponsored a flight to the safety
Listed/REITs, 3.7% of Treasurys, pushing the 10-year yield below 2.6 percent. While
domestic growth has moderated recently, the waning impact of the
tax cut stimulus will likely trim forward estimates further. As a result,
Retail Mortgage Originations
the Fed decided to cease reducing its balance sheet reduction through
By Lender
quantitative tightening by September and removed the potential for
100% rate increases through the remainder of the year. The bond market
has begun to price in a much more dovish Fed, with flattening interest
Percent of Dollar Volume

75% CMBS rates reflecting more caution. Fed officials will likely focus on the
Reg'l/Local Bank intersection of a global growth slowdown and continued labor market
Nat'l Bank/Int'l Bank
50% strength to refine their plans moving forward, keeping interest rates
Financial/Insurance
stable for the foreseeable future.
Pvt/Other
25%
• Malls, legacy big-box players cloud otherwise optimistic retail
0%
landscape; underwriting remains conservative. Uncertainty
14 15 16 17 18 surrounding legacy retailers and the ongoing shift of consumer
purchasing preferences to online sources have begun to weigh on
* Trailing 12 months through 1Q19 retail sentiment, with lenders proving more cautious and conservative
Include sales $2.5 million and greater
than in prior years of the cycle. Active lenders include local, regional
Sources: CoStar Group, Inc.; Real Capital Analytics
and national banks, and insurance companies, with a primary lender
focus on net-leased assets and premier mixed-use structures being
highly desirable. Meanwhile, outlying malls and non-credit tenants
will undergo much more scrutiny. This has created a two-tier market
National Retail Group
structure, with loan-to-value (LTV) ratios in the 55 to 75 percent
Scott M. Holmes range depending on borrower, asset and location factors. Mezzanine
Senior Vice President, National Director | National Retail Group
and bridge loan structures have been more frequently used in this
Tel: (602) 687-6689 | scott.holmes@marcusmillichap.com
environment, with owners undertaking capital improvements at high-
Prepared and edited by er leverage ratios on the short-term debt before seeking long-term
Jonathan Ferrendelli financing options once their operations have been proved.
Research Associate | Research Services

Atlanta Office: Michael Glass First Vice P

For information on national retail trends, contact:
michael.glass@marcusmillicha
John Chang Michael Fasano First Vice President/Regional Manager
Senior Vice President, National Director | Research Services 1100 Abernathy Road N.E., Bldg. 500, Suite 600 Cleveland Office:
Atlanta, GA 30328 5005 Rockside Road, Suite 800
Tel: (602) 707-9700 | john.chang@marcusmillichap.com
(678) 808-2700 | michael.fasano@marcusmillichap.com Independence, OH 44131
(216) 264-2000
Price: $250
Columbus Office:
© Marcus & Millichap 2019 | www.MarcusMillichap.com 230 West Street, Suite 100
Columbus, OH 43215
(614) 360-9800
Austin Office:

Craig Swanson Vice President/Regional Manager

9600 North Mopac Expressway, Suite 300 Cincinnati Office:
Austin, TX 78759
(512) 338-7800 | craig.swanson@marcusmillichap.com Colby Haugness Regiona
600 Vine Street, 10th Floor
Cincinnati, OH 45202
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,
(513) 878-7700 | colby.haugness
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 intended 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 Baltimore Office:
Analytics; Real Capital Analytics; TWR/Dodge Pipeline; U.S. Census Bureau Tim Speck First Vice Presid
tim.speck@marcusmillichap.com
Matthew Drane Regional Manager
100 E. Pratt St., Suite 2114 Dallas Office:
Baltimore, MD 21202 5001 Spring Valley Road, Suite