Following years of prosperity, the recession, which was compounded by the terrorist attacks in September, significantly destabilized the U.S. economy in 2001. Although Atlanta's employment base is diversified among several employment sectors, the dramatic change in the economic climate demonstrated that the city is not immune to a downturn.

After posting annual job gains averaging 76,000 from 1996 to 2000, Atlanta's job base declined for the first time since 1991. Overall unemployment, which remained at a low level of 3 percent for the previous 3 years, moved up to 4.2 percent by year-end 2001. Fortunately, the Federal Reserve acted quickly to adjust monetary policy in an effort to limit the extent of the downturn and bring about its resolution. The Federal Reserve's actions, combined with the U.S. war on terrorism, bolstered consumer confidence and spending, which has led to improved stability in 2002. While economists have suggested that conditions will begin to improve by the third quarter of this year, unemployment rates may tick up in the near term as sporadic job losses persist.

Multifamily

Consisting primarily of garden style communities, the Atlanta apartment market contains approximately 450,000 units throughout the 20-county metropolitan statistical area. With a population increase of more than 1 million since 1990, the city is transforming as land prices soar and developers adopt more cost effective mid-rise styles.

During the last few years, the market has delivered an average of 15,500 new units annually, as well as a significant amount of new and converted condominiums. One new condominium community currently underway is McRae & Stolz's The Clifton, an upscale development of 80 condominium homes in the Emory/Druid Hills area.

While high job growth levels supported the absorption of new apartment units in the recent past, demand was able to keep pace with supply. This trend eroded in 2001, however, when economic conditions slowed dramatically. The result caused effective rental rates to decline more than 8 percent and the overall vacancy to nearly double to 8.9 percent by year-end 2001.

As a whole, investors adopted a more conservative approach to apartment investments in 2001. As lower bids were made regularly, the gap between buyers' and sellers' expectations continued to widen, increasing the average marketing time. Sales velocity decreased nearly 35 percent with 121 sales throughout metro Atlanta. Although fewer properties were sold, overall values did not appear to be negatively affected. The average price per unit increased from $57,000 in 2000 to $61,700 in 2001.

As the national economy is expected to show signs of improvement in 2002, many developers are confident that apartment values will continue to hold in the near term. The Lane Companies of Atlanta will begin its new project, Park District at Atlantic Station, one of the most anticipated upcoming apartment developments in Atlanta, this year. Located immediately west of the Interstate 75/85 downtown corridor, the project will provide future tenants easy access to nearby office and retail facilities. With construction slated to begin in July, this four-story, 233-unit urban-style community will be the first component of the 138-acre redevelopment of the Atlantic Steel site by Jim Jacoby and Charlie Brown. The project was designed by architect James Harwick + Partners, Inc. When complete, Atlantic Station will contain approximately 15 million square feet of residential, office, retail, entertainment, restaurant and hotel properties.

Office

National demand for office space was notably impacted as the economy quickly decelerated in 2001. Not only were fewer prospective tenants seeking space, but companies previously struggling to turn profits either scaled back or were forced to fold, returning formerly leased space back to the market in disconcerting proportions. However, Atlanta fared better than other markets such as Boston, San Francisco and Los Angeles, where negative absorption numbers were recorded every quarter of last year.

The Atlanta office market, having delivered a stellar performance in recent years, mirrored other cities with a slower year in 2001. The overall vacancy rate increased to 17.8 percent overall, up from 11.5 percent at year-end 2000, as 7.2 million square feet of office space was delivered. As of first quarter 2002, Class C properties were experiencing the highest vacancy rates at 18.4 percent, followed by Class B and Class A, at 15.4 percent and 13.2 percent respectively. While vacancy rates have moved up, rental rate growth has stagnated, hovering between an average of $20 and $21 per square foot overall. Effective management teams continue to gain importance during this slow period, as has the credit-worthiness of prospective tenants. While many owners will work on stabilizing operating incomes this year, well-located properties with diversified tenant line-ups will continue to be among top performers.

In January, Pope & Land Enterprises, Inc. began construction of One Glenlake, a new office development in the North Atlanta/Central Perimeter submarket. Designed by Picard Chilton Architects, One Glenlake will contain 353,000 square feet with 14 floors and is located just off of Georgia 400 and Abernathy Road. The project will consist of high performance glass curtain wall architecture and concrete frame construction. It is situated on eight wooded acres with a lake fronting the site. California-based software developer Siebel Systems has signed on for 195,000 square feet, or 55 percent, of the total project. Pope & Land is expected to deliver this new project to the market in January 2003.

R.J. Griffin & Company of Atlanta is currently building the Byers Engineering facility on Barfield Road near the intersection of Highway 400 and Abernathy Road. "We are beginning this project by demolishing the owner's existing buildings and parking lots on site and constructing a new four-story office building and a two-level parking deck," says Tom Raney of R.J. Griffin. "The office building will be a very uniquely designed concrete frame structure with multiple skin types consisting of architectural pre-cast concrete, standard glass curtainwall, sloped structural curtainwall and imported limestone panels." The building atrium will be open to all four levels and will have a unique cantilevered stairwell as the central focal point.

Industrial

Atlanta's industrial market declined in 2001 due to a significant drop in demand and the return of previously leased space back to the market. While the construction pipeline remained full, an elevated volume of 17.6 million square feet was delivered. In recent years, development trends have shifted to larger buildings with more than 250,000 square feet on average. This trend has been driven by the desire of many companies to consolidate southeastern distribution centers into single, less expensive, well-located centers.

With the economy lagging and overbuilding currently a viable concern, developers have scaled back construction to approximately 7 million square feet at present. This is due in part to the escalating vacancy rate, which after declining to 9.4 percent by year-end 2000, increased to 12.5 percent last year. Currently the warehouse sector has the lowest vacancy at 11.8 percent followed by shallow-bay at 12.1 percent and flex properties at 18.6 percent. With a large amount of sublease space hanging on the market, absorption figures have dropped off markedly. During the second half of 2001, 1.1 million square feet of negative absorption was recorded, compared to 10.3 million square feet of positive absorption during the same period in 2000. Further impacting the industrial sector, leasing activity declined from 71.7 million square feet in 2000 to 25 million square feet in 2001, a 65 percent drop. Despite recent economic volatility, the South Atlanta submarket continues to grow. Following the delivery of 7.2 million square feet of industrial space last year, nearly 2 million square feet is currently underway in South Atlanta. Lower available land costs and the addition of a fifth runway at Hartsfield International Airport will continue to attract prospective tenants to this submarket in 2002.

The Interstate 20 West/Fulton County submarket is also growing with the help of Carter & Associates. The company will complete the first building at the New Manchester Distribution Center this September. The 94-acre bulk distribution and warehouse development is located on Riverside Parkway near Camp Creek Parkway and will accommodate 1.6 million square feet. New Manchester Distribution Center will be built in phases with land available for build-to-suits. The first building will encompass 400,000 square feet and be expandable by approximately 189,000 square feet. Atlanta-based Conlan Company is serving as general contractor, and Wakefield Beasley & Associates is the architect for the project.

Although the industrial sector is anticipated to struggle through the remainder of 2002, overall values are expected to hold up in the near term. With less than stellar conditions mounting, a much-needed recovery in the overall economy would significantly help to stabilize current market conditions.

Retail

With more than 140 million square feet of speculative retail space, Atlanta contains one of the largest concentrations of retail shopping in the U.S. In 2001, the overall vacancy rate in Atlanta ticked up 2.7 percent to 9 percent overall as 5.4 million square feet of retail development was delivered and an additional 3.5 million square feet was started. The regional mall sector showed the most delivery activity as the Mall at Stonecrest in Lithonia and Discover Mills in Lawrenceville were completed with 1.3 million square feet each. With five anchor tenants, Stonecrest is the result of significant retail and residential development occurring within its trade area. Discover Mills, on the other hand, will actively compete with Gwinnett Place Mall and Mall of Georgia. Billed as an outlet mall, this recent regional mall addition has anchor tenants ranging from Off 5th Saks Fifth Avenue Outlet to Bass Pro Shops Outdoor World.

North American Properties of Cincinnati announced a powerhouse line-up of retailers and restaurants for its recently started Camp Creek MarketPlace in South Fulton County. The 750,000-square-foot power center, located on 92 acres at the northwest quadrant of Interstate 285 and Camp Creek Parkway, is valued at approximately $90 million.

"This shopping center will provide goods and services sorely needed in our community as well as an amenity to area residences, thereby ensuring the continued growth and prosperity of the City of East Point and South Fulton County," says Stephen Lam, Mark Toro's partner at North American Properties. Committed anchor tenants include Target, Lowe's Home Improvement Warehouse, BJ's Wholesale Club, Barnes & Noble, Marshalls, Ross Dress for Less, Linens 'n Things, PetsMart and Staples. Additionally, Red Lobster, Ruby Tuesday and LongHorn Steakhouse have committed to purchase three of 10 available outparcels at the development. Site work started in March, vertical construction will follow this fall and openings are scheduled for second quarter 2003.

Michael Crawford serves as research director with Bullock Mannelly Partners, Inc. in Atlanta.


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