2023 Cobb County Industrial Market Review

It is a goal of mine to do deeper dives into the product that I sell and lease. You’ll see over the course of time less frequent, more in depth articles. These pieces will focus on the current market conditions of the two asset classes I represent, office and industrial, as well as actionable money-making information for the owners that own these assets and the businesses that occupy them.

Today’s dive is into the world of Cobb County Industrial Real Estate. Specifically, the market for industrial buildings under 100,000 square feet.

I want to present the data in a way that allows the reader to draw his or her own conclusions and use actual numbers, not anecdotes. You’ll see more written about my methodology than the actual numbers, so the actual numbers are broken out on a separate graph. I realize this format isn’t for everyone, especially in today’s environment where all content is dwindled down to eight second videos. That’s okay – I analyze the data so you don’t have to.

I track 69,600,000 square feet of total industrial space in Cobb County across 1,862 individual properties. These properties break down into four categories: Flex Buildings, Warehouses, Manufacturing buildings and condos within Industrial business parks. As of this time, I am not tracking unimproved land zoned HI, LI, M1 or M2 but plan to do so later this year as the land market recovers.

The national brokerage shops provide great insight, but it is skewed towards the larger buildings, as that is their specialty, counting only warehouses over 10,000 square feet. Of the total 1088 existing warehouses in Cobb County, 446 are under 10,000 square feet. They aren’t even counting 41% of the standalone warehouse market! Additionally, Cobb County is split among two markets, 75 Northwest and 20 Douglasville and I haven’t found coverage on the county as a whole.

Setting aside those critiques, the large shop data skews the vacancy data when focused on a Rentable Building Area (RBA) metric. That is because a large new construction warehouse that is available for lease commands a large percentage of the overall vacancy in the market, even when it is a single tenant building. Don’t get me wrong, the larger warehouses are important and I do track the new construction market. There are 15 buildings under development which contain 3,020,000 square feet, which is 4.4% of the stock that I track.

Continuing to dive into the impact of high RBA buildings, there are currently 4,000,000 available square feet across just 19 single tenant buildings. That skews the true market so we will exclude those in this analysis. I do track these buildings and if you want a view of the market for the big box buildings, please let me know and I’ll put together a presentation for you.

Vacancy:

Removing single tenant buildings over 100,000 square feet, we have 62 million square feet to study and extrapolate data. With 3,110,000 square feet available, we are at 4.98% vacancy across Cobb County.

For comparison, had I included all supply and new construction that I am tracking, there would be 7,133,000 square feet available out of 69 million, or 10.25% vacancy across Cobb County. As headlines show increased industrial inventory, it is important for owners to understand what part of the market that inventory represents.

Sales Market:

I am tracking 50 properties marketed for sale. As a percentage of overall stock, there is just 2.7% of the stock in various phases of marketing and escrow. There is very little inventory for Buyers to select from and that number gets lower once factors such as submarket, building class or size are considered.

I have tracked 43 properties that have sold in 2023. December is a large month for transactions closing so we’ll have our Year in Review come early February once the full information is complete. These 43 properties covered 1,571,000 square feet and $396 million in volume for an average of $9 million per transaction. This is why truly tracking the market matters. Several of these were small buildings with lots of outdoor storage, which has skewed the average price per foot over $230/ft, which is not the going rate for Class B and C industrial. Moreover, if we exclude buildings over 100,000 square feet, there were 39 sales for $188,828,000 covering 754,500 square feet.

Rental Rates:

Rental rates as a function of supply and demand so now that we have tackled the supply component, we can dive into the demand and the rental rate aspect.

As you probably know, there is an inverse relationship between the size of a building and the face rental rate. The big box class A projects are getting $6/ft. On the opposite end, we have done deals on smaller spaces at $15/ft effective rate. There is a really interest phenomena in the market where effective rates have softened in a year over year capacity but are up substantially since last lease signing. Leases signed 2015-2020 are at as much as half of the current effective rate. This is causing heartburn for tenants, some of which simply can not afford to pay the current market rate. It is also creating issues for owners who have to decide how to handle renewals and whether it is better to bring a building back to market.

Demand Drivers:

The tenants that occupy this space serve residents and businesses in the local community. With a 40% increase the supply of money since March 2020, the tenant’s customer base was flush with cash. Businesses demanded more space and thus rents increased. This demand driver has softened but is still there. Specifically for Cobb County Industrial, we are the benefit of continued economic activity both at the business level and consumer level. I expect this demand to continue into 2024 and beyond.