2024 Cobb County Industrial Market Outlook
Why am I receiving this information packet?
You are receiving this market report as an owner of industrial real estate in Cobb County. We hope the information contained in this packet provides market intel on the Cobb County submarket, provides insight into market trends and examples of fruitful owner/ broker relationships and advisory that goes beyond transactions and instead focuses on assisting owners in reaching their property specific and portfolio goals. If we can help in anyway, contact information is on the bottom of each page.
Why should I read this?
This packet is aimed specifically at private owners of industrial real estate in Cobb County. We study and work with all types of owners, tenants, and owner/users. We know what is happening in the market in real time. We also see what works and what doesn’t. To you, we offer all our insight and knowledge so that your building ownership is as profitable as possible with the least amount of hassle. We discuss Vacancy, Rental Rates, Sales Velocity, and Demand Drivers
Who are you and why are you sending this to me?
Knapp Commercial Advisors is a boutique commercial real estate firm in Atlanta, GA. Nick Fitzpatrick is Vice President of Brokerage and oversees the Cobb County Office and Industrial market. The following information is presented by Nick. We provide sales and leasing brokerage services. To do that, we study and track the market as closely as anyone. We trust that our experience can be beneficial to you. Our hope is that through our experience and advisory, we can enhance your ownership experience and if the opportunity arises, provide sales and leasing brokerage services.
Table of Contents:
Page 2-3: 2024 Cobb County Industrial Market Outlook
Pages 4- 5: Case Studies where we assisted owners in increasing property value, reducing operating burden and successfully helped the owners achieve their wealth building goals.
Page 6: The value of a regular Broker Opinion of Value.
Page 7: Our Sales and Leasing Process for transacting commercial real estate, which was developed over nine years of transacting with and studying the best in business.
2024 Cobb County Industrial Market Outlook
2024 will see a bifurcation of the industrial market. The media and national brokerage reports will report upward pressure on vacancy rates. That is because they focus on the industrial market as a whole, lumping together 300,000 square foot new construction distribution centers with 10,000 square foot warehouses. In our report, we focus on the market for industrial buildings under 100,000 square feet.
Our reasoning for focusing on buildings under 100,000 square feet, and really under 50,000 square feet is simple. We want to get a granular view of the market. 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 (Fulton Industrial) and I haven’t found coverage singularly on the county as a whole, thus our approach to delivering the report to you in this fashion.
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.
Overall Sentiment: The market will see softening demand and a return to normal for big box warehouses. Demand for smaller, more infill warehouse will remain strong and supply will remain constrained.
Vacancy:
· There are 15 buildings under development which contain 3,020,000 square feet, which is 4.4% of the stock that I track.
· There are currently 4,000,000 available square feet across just 19 single tenant buildings.
· 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 and Velocity:
· 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 tracked 60 properties that sold in 2023. These 60 properties covered 1,941,000 square feet and $248 million in volume for an average of $4.1 million per transaction. This is why truly tracking the market matters. Only 3.2% of the overall stock traded in 2023. If we focus only on buildings less than 100,000 square feet, there were 57 sales for $149,764,000 covering 1,124,500 square feet.
Rental Rates:
· The “Bomber” Class A projects are commanding $6+/ft NNN
· Warehouses under 5,000 square feet are commanding $13-$15/ft NNN
· Warehouses 5,000-20,000 square feet are commanding $8-13/ft NNN
· There is an interesting phenomenon in the market where effective rates have softened in a year over year metric but are up substantially since last lease signing. Leases signed 2015-2019 are at as much as half of the current effective rate. This is causing heartburn for tenants, some of which simply cannot afford to pay the current market rate.
· Owners must decide how to handle renewals and whether if it is better to bring a building back to market, along with the associated vacancy and leasing fees or decide to meet tenant at a rate they can pay. We have worked through this process with plenty of owners and can help guide you.
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.
Interest Rates and Sales Demand:
· The Federal Reserve is expected to cut the Federal Funds rate in 2024. This will result in a lowered 10-year Treasury.
· Our estimate is that given increased rental rates and a stabilized debt market there will be many owner users who look to purchase their real estate in 2024.
Construction Outlook:
· There is almost no construction of industrial or flex product under 100,000 square feet.
· Land prices have not come down enough to reflect continued price of labor and materials.
· We see very limited new supply in the next two years.
Nick Fitzpatrick| Vice President, Brokerage |Knapp Commercial Advisors
Cell: 404-441-7896 | E-mail: Nick@MariettaCRE.com | Website: MariettaCRE.com
Case Studies
Here is how we helped a busy owner increase revenue, streamline operations, and protect his commercial property portfolio.
During my conversations with an owner and his property manager, I learned that the owner wanted to grow his real estate portfolio but was spending all his time managing his in-house property manager and day to day operations. The reactionary nature of day-to-day operations was hampering growth efforts. This case study shows three recommendations we made after studying the owners' business.
First, we found that the property manager was spending most of his day answering phones and showing the portfolio's available spaces. The manager couldn’t move through vacancies quick enough, causing a drag on cash flows. Our recommendation was to catalogue the portfolio's floor plans, create virtual tours and place all information on a website. At the property level, we suggested a permanent FOR LEASE sign with a QR code that would take the prospective tenant to the website with the availability across the portfolio, virtual tours, and rental amount. In doing this, the owner was able to pre-market availabilities across the portfolio, decrease the calls that just ask "what is the rent?" and turn vacancies more efficiently.
Second, we created a pro forma with the expected expenses each property should incur in a year. We compared that to the property level actual expenses. In this, we found that preventive maintenance was not being done, only reactive maintenance. Reactive maintenance distracted ownership from operations and was often more expensive than preventative maintenance given the timeline for repair/ replacement. We not only understood property operations but were able to guide decisions on R&M that will keep the properties in top condition, driving rents and the overall value of the portfolio.
Last, we created an asset management schedule. Each month has a theme. For instance, in March the parking lots are to be examined. The property manager can identify potential issues before they occur and plan capital outlays accordingly. Given the size of the portfolio, the manager can go to contractors and receive bulk pricing bids if several jobs are needed simultaneously.
This study took less than 2 hours of the owner's time. We were able to advise this owner, increase his property value and he has a trusted brokerage partner when he's ready to purchase additional properties or if he decides to turn over in-house leasing. This owner benefited from our years of experience learning from and advising the best operators in the business. We were able to give examples of what worked well for others and the owner didn’t have to go through trial and error or re-invent the wheel.
Nick Fitzpatrick| Vice President, Brokerage |Knapp Commercial Advisors
Cell: 404-441-7896 | E-mail: Nick@MariettaCRE.com | Website: MariettaCRE.com
Case Studies
Here is how we helped an owner diversify her portfolio, increase free cash flow, and protect against market fluctuations.
An owner approached us with a problem. A single property she purchased many years ago had appreciated substantially in value. This single property represented a large chunk of her net worth and she felt uncomfortable "having all her eggs in one basket."
In discussing the owner's desire for diversification, we learned she was comfortable with moderate levels of long term, fixed rate debt. We also learned her day job was a high paying W2 job with minimal tax benefits. Here is what we were able to accomplish for her:
First, we secured a buyer for her current asset with favorable terms to the seller. At closing, the owner placed the sales proceeds with a 1031 Exchange Intermediary. Using the time allowances of the 1031 exchange, the owner identified two replacement properties and agreed to terms to purchase those. Her portfolio now had more diversification.
Second, keeping in mind what we learned in our conversations, we advised the owner to place loans for 50% leverage on the properties. This leverage was long term, fixed rate debt. Adding this debt helped the owner purchase larger assets than she could have with cash. Combining the additional income and the annual principal pay down, this represented a passive increase in her net worth. We then guided her to speak with a CPA to explore other tax benefits.
At the end of our process, this owner was able to increase her monthly rental income, build long term wealth through principal pay down and reduce tax burden via interest expense and higher depreciation benefits.
Again, this study took less than a few hours of the owner's time to design. The implementation was completed in a matter of months. We were able to advise this owner, help align her portfolio with her comfort levels and provide other nuggets of advice she can implement in the future.
Commercial real estate does not trade on an open exchange. There are many factors that drive value. There are many factors that determine owner satisfaction. Our job is to talk to the entire market, learning what works and what doesn't. We pride ourselves on these case studies where we dug deep to understand the owner's circumstances and helped them achieve their goals, including introducing concepts that they might not know!
Nick Fitzpatrick| Vice President, Brokerage |Knapp Commercial Advisors
Cell: 404-441-7896 | E-mail: Nick@MariettaCRE.com | Website: MariettaCRE.com
The benefits of a regular Broker opinion of value &
methods to improve property performance
Let’s be honest, we’re Commercial Real Estate Brokers and our job is to broker transactions. The best way we’ve found to do that is to provide tremendous value to owners in the market we specialize in: Cobb and Fulton Counties. By offering guidance on property and portfolio decisions, we help Investors and Owners increase cash flow, decrease the burden of management, and increase the overall satisfaction of ownership. The result? These satisfied owners become a large portion of our client base. We each do well in the long run working together.
In this article, we will delve into the benefits of leveraging our years of experience in brokering transactions, working with successful investors, and studying their strategies. We will emphasize how our insights, given to you through a Broker Opinion of Value, along with a comprehensive review of property performance, can play a pivotal role in maximizing cash flow and elevating your commercial real estate portfolio.
The Power of Measurement
Simply put, you can’t evaluate what isn’t measured. We have found that a thorough review of a property’s performance helps an owner understand not just the current property condition, but works as a framework for future management decisions. Over the course of ownership, expenses creep up, rents stay just below market value and the owner unknowingly leaves substantial cash on the table. Our overall goal is to help evaluate and measure the performance of a given property and help the owner chart a course for maximum success. No owner wants to lose money or make a bad investment. That’s why knowing what metrics to measure and how they benchmark within the industry is so valuable.
Hidden Opportunities
More often than not, our Broker Opinion of Value finds expenses that have crept up or, even worse, costly deferred maintenance because management was focused on conserving cash, rather than maximizing the return on investment (ROI) of the dollars generated. By shining a light on these areas, we help owners identify opportunities to enhance cash flow, driving their investments towards greater profitability. We focus first on the money coming in. We’ll examine how rents compare to market and spend time understanding the drivers of vacancies and how we can increase occupancy at the property level. By understanding where opportunity lies to improve the property, we can increase revenue and occupancy. Turning to expenses, we want to examine how money is being spent, where can expenses be reduced and where should they be increased. We’ll determine if capital expenditures now can lead to better cash flow in the future.
Portfolio Stability: Shielding Against Uncertainties
Two scenarios pose significant risks for property owners: short-term debt maturities and insufficient reserves to cover unexpected expenses. In both cases, owners find themselves burdened with substantial bills and inadequate cash on hand. By evaluating properties both in a silo and the portfolio holistically, we create customized plans that transform the unpredictable and unavoidable into manageable situations, fortifying portfolio stability.
Avoiding Bad Decisions:
Industrial real estate is a great investment because it’s difficult to develop and businesses usually stay in a location long term. The down side is that mistakes can be costly. Putting the wrong business in a warehouse or business park can cause environmental issues, legal issues, and issues with the neighbors. We study the types of businesses that do well in each type of building. Do you have a nuisance tenant or situation? Let’s talk through a solution.
Asset Management:
Within our Broker Opinion of Value, we often highlight strategies to streamline asset management. We always will recommend moving to a NNN lease where possible. This helps shield against rising costs. We study tenant mix and tenant use. We want to ensure the tenants we put in the buildings are ideal fits and won’t pose management, financial or environmental issues down the line. Challenge us with your specific requirements and let us guide you towards optimal asset management practices.
Exit Strategies:
Some investors plan to hold short-term, some longer-term and some investors plan to pass down their assets to children as a legacy. We’ve helped Owners with all the above strategies. What is important is to have a plan in place for when you are no longer running the asset. Maybe that’s because we sold it for a great price and you’re at the beach, or maybe it’s when the next generation is running the business. Whatever your goal, we want to work to create an Exit Strategy for you that maximizes the value of your property, minimizes the hassle factor, and protects the soundness of the investment.
We don’t want a transactional relationship. We want to empower you to make informed investment decisions. Through a comprehensive review of property performance, you unlock opportunities to increase cash flow, fortify portfolio stability, identify growth potential, and optimize asset management.
Give us a call and we’ll ensure your portfolio is fully leased and in good condition.
Nick Fitzpatrick| Vice President, Brokerage |Knapp Commercial Advisors
Cell: 404-441-7896 | E-mail: Nick@MariettaCRE.com | Website: MariettaCRE.com
Our Sales and Leasing Process
Our proprietary sales and leasing process ensures your property is sold or leased for the most money possible, with the greatest certainty of close and with the least amount of hassle possible.
Here is exactly what we do when you hire us to sell or lease your industrial building. We are confident in our processes and can get you the RESULTS you are looking for.
The process begins with Discovery. We study your property, aiming to know everything. This certainly takes a lot of work but we have to know what is it we are selling. We review leases, past expenses, property condition reports and understand any debt or liens. This discovery process allows us to truly advise owners in the steps that follow.
Once Discovery is complete and we have a full understanding of the property, we begin the Evaluation process. During Evaluation, we are taking the information from Discovery and determining actionable items to increase the property value; comparing the property to competition in the market (both via sales comps and a current market survey); and creating a Broker Opinion of Value. During Evaluation we also begin the process of developing the “Story” of the asset. Storytelling is the marketing technique to show qualified buyers and tenants why your asset is worthy of the price and terms we are seeking.
In the Exposure process, we identify our target buyer and tenant pool. We create a marketing plan to place your property in front of those qualified and competent buyers and tenants. This is how our Storytelling expertise shines. In making a market, Knapp Commercial Advisors believes in providing a comprehensive and stunning visual package speaking to the strengths of the property and presenting a compelling investment thesis. The efficient market hypothesis tells us that maximum price is achieved when the most prospects have the lowest barrier to entry to the information. We utilize a vast database, broker relationships and over five listing platforms to truly and widely market your commercial real estate. Each property we bring to market is different - so we create a unique strategy each time!
Confident that we’ve done worked our processes, we go under contract with a suitable offer and move into the Delivery phase. We believe that in doing all the work upfront, we have mitigated as much risk as possible and selected a counter-party who will actually close. We are Deal-Makers and believe in our processes and abilities. Remember, we aren’t paid until close so we have a vested interest in getting you to closing! In our Delivery phase, we are working with all related parties to ensure a surety of closing and avoiding the dreaded re-trade. Time and time again, we have found that the work upfront reduces buyer uncertainty and gets us where you want to be - check in hand after closing.
Nick Fitzpatrick| Vice President, Brokerage |Knapp Commercial Advisors
Cell: 404-441-7896 | E-mail: Nick@MariettaCRE.com | Website: MariettaCRE.com