Market Forecast: Atlanta

Although the surge of new homebuilding that made Atlanta one of the nation’s busiest housing markets during the past decade has cooled significantly, the high-rise, multi-family condo market is booming. Distributors, reps and electrical contractors also are excited about a surge in commercial construction.

Bryan Dabruzzi, marketing manager, Fox-Rowden-McBrayer, a manufacturers’ rep in Norcross, Ga., says the residential market has definitely slowed down. “There’s a lot of volatile activity,” he says. “Construction of single-family homes is starting to slow down as much as 20 percent to 25 percent from this time last year.”

He and other Atlanta-based manufacturers’ reps and electrical distributors say towering cranes on the construction sites of high-rise condo towers are common everywhere in downtown Atlanta. “These are high-rise 30- and 40-story condo developments,” he says. “Those continue to boom, and we continue to see a lot of growth there. But I would consider that commercial development more than multi-family.”

While many corporations are building offices north of downtown in midtown Atlanta and the trendy Buckhead neighborhood, several large projects are underway downtown. W Hotels is building one of the first high-rise hotels in downtown Atlanta since the 1970s. It will be part of the Allen Plaza development near the Georgia Aquarium. The 28-story, $125 million W Atlanta Downtown Hotel & Residences will have 237 hotel suites and 76 condos. Construction is set to start this year, with an opening in 2008. The W will share a block with Allen Plaza’s new 14-story headquarters for Ernst & Young, which is scheduled to open this spring.

But Atlanta’s Buckhead and Midtown neighborhoods are seeing most of the action, says Jimmy Nall, a contractor sales manager for GE Supply in Atlanta. “These are huge tenants who come in and take 18 floors,” he says. “We love that work — fast and high-end. It’s lots of lighting and lighting control-type stuff.

“There were four different communities (downtown, Buckhead, Perimeter and Alpharetta) and there was actually space in between. Now it’s just a row. It’s filled in. That was the corridor where we saw the most growth here in the last two or three years. It’s making Atlanta continuous from the center of town all the way out to Alpharetta, north of Atlanta.”

One large company that moved from downtown Atlanta to midtown is King & Spalding, a major law firm that moved to 1180 Peachtree, a 41-story tower developed by Hines of Atlanta and completed in February 2006 in midtown Atlanta. This building was the first high-rise office building in the southeastern United States to be certified for Gold status in the Leadership in Energy and Environmental Design Core and Shell Development program (LEED-CS), sponsored by the U.S. Green Building Council.

Another big project in midtown Atlanta is Atlantic Station, which is being billed as a “live-work-play” development. Located near the intersection of Interstates 75 and 85, Atlantic Station is a 138-acre environmental redevelopment and reclamation of the former Atlantic Steel Mill being developed by AIF Global Real Estate Investment Corp. and Atlanta-based Jacoby Development Inc. Once complete, the community is projected to include 15 million square feet of retail, office, residential and hotel space and 11 acres of public parks.

Despite this growth, during the fourth quarter of 2006 Atlanta had one of the highest vacancy rates in the country at 19 percent, according to CB Richard Ellis’s Office Vacancy Index. Sources familiar with the city’s office market say the downtown area was hit hard several years ago by the dot-com bust. When the data centers and dot-com companies that occupied offices of approximately 50,000 square feet left, tons of vacant space became available and the office market has not fully rebounded.

Mike Gorin of Gorin-Hopper-McCoy Inc., a manufacturers’ rep in Norcross, Ga., is also seeing tremendous growth north of Atlanta. “Atlanta is growing so all the typical infill construction that follows the growth with residential is happening,” he says. “You’ll drive north of Atlanta and go into an area that four years ago didn’t have much of anything, and you go in there now and all different national chains and retail stores have popped up out of nowhere. There is a lot of that going on, little mini cities that have their own shopping centers.”

While commercial construction is up, single-family housing is down. This year the region’s 8,570 total building permits year-to-date through February are down 26 percent from February 2006.

“We have been hit in the residential segment, but we feel that the existing inventory will decrease by the summer,” says Chuck Albritton, a principal with Tower Sales Inc., Suwanee, Ga.

Tower Sales added a specification person in mid-December 2006 to help the company go after some of the larger project business. “We are using his input and other Tower outside salesmen to create a workable log of all commercial jobs and condo projects that are potential business for 2007,” he says. “There is a lot of activity in Atlanta in regards to hospitals, data centers and high-rise condos scheduled for 2007. We feel the backlog of commercial jobs and high-rise condos will keep the business climate in Atlanta strong until we catch up with the existing homes up for sale.”

Herm Isenstein, president, DISC Corp., Orange, Conn., sees positive growth for Atlanta this year. He forecasts that electrical distributors in the Atlanta metropolitan area will sell approximately $1.8 billion in electrical products this year, a 6.4 percent increase over 2006. The increase in sales will be led by stronger growth in the contractor market.

There’s a mix of good and bad news in the manufacturing sector in the Atlanta area. The good news is that the Kia plant in West Point now under construction should produce cars by 2009. The company says the plant will employ 2,500 workers, and analysts predict the parts suppliers that move to the area to support the plant will add another 2,000 jobs, according to the Federal Reserve Bank of Atlanta.

On a down note, the General Motors plant in the Atlanta suburb of Doraville has begun shutting its doors, eventually taking more than 3,000 assembly jobs with it. Ford Motor Co. closed its auto assembly plant in metropolitan Atlanta in 2006.

The Atlanta landscape has also changed in the electrical wholesaling industry. Just a few months after buying GE Supply, Shelton, Conn., Rexel bought DH Supply Co., a distributor of electrical and telecommunication products with six locations in the greater Atlanta area. Then US Electrical Services LLC (USESI) Exton, Pa., came in and bought the two largest remaining independent electrical distributors in Atlanta — Danlar Lighting and Distribution and Lade Electric Supply Inc.

“It’s just a lot of turmoil in the distribution business in Atlanta right now,” says GE Supply’s Nall. “There are a lot of people changing around and a lot of money flying around.” He adds that GE Supply is one of the companies least affected by the changes because there has been a seamless transition since Rexel acquired the company. “When there’s a lot of change, the guy who is not changing has a leg up,” he says.

While the outlook for Atlanta’s growth is positive for the next couple years, it’s difficult to predict much further out, industry sources say.

“I think 2007/2008 is more of the same,” says Nall. “We don’t play in residential at all; we’re mainly commercial construction. We’re putting a 5 percent to 6 percent number on it every year. The last few years it’s lived up to it. I think the next few years are good. I can’t see real good past then.”