By Faron Thompson, International Director, Capital Markets, JLL Atlanta
As the economic recovery gains momentum, commercial real estate investors are rediscovering Atlanta. Atlanta’s return to the limelight is akin to a baseball team’s late-inning rally. In the earlier stages of the economic recovery, domestic and international investors favored the 24-hour gateway cities of the U.S., such as New York, Washington, D.C., and San Francisco. More recently, investors are taking a closer look at Atlanta.
This shift is part of a larger trend taking shape globally. Recent research by JLL shows the world’s top 30 cities, which include Atlanta, account for half of the $4.6 trillion in direct real estate investments the past decade. A flood of capital targeted the largest cities, from London and New York to Tokyo and Los Angeles.
However, the combination of limited availability of prime properties and thin returns by historical standards in these super and primary cities has led investors to look elsewhere to allocate funds. Enter Atlanta and other second-tier cities.
According to a LaSalle ranking of the top 30 global markets based on direct commercial real estate investment, Atlanta rose from No. 26 in 2012 to No. 16 globally as of the third quarter of 2013. Total annual transactions rose from $6.7 billion in 2012 to $9.6 billion in 2013. Those volumes include heightened international investment, from $361 million to $795 million during that time.
What is Atlanta’s draw?
Its compelling case for investment and economic development is very much the same as during the first investment boom I participated in during the late 1980s to early 1990s. The city is accessible via Hartsfield-Jackson International Airport. We maintain a large, educated labor force and a lively pro-business climate at both the state and local level. Atlanta boasts a vibrant and diverse economy and offers cultural, sporting and educational assets in a pleasant climate.
There are some notable changes in the current real estate cycle. The shrinking availability of developable land creates higher barriers to entry, which is attractive to investors because they have less reason to worry about competition.
Although international investment in Atlanta is not dominated by any particular property type, multifamily investment has experienced explosive growth. The stigma about renting has been debunked. Renting is viewed as a viable alternative to home ownership at virtually every socio-economic level.
In the office sector, Atlanta possesses an abundance of the well-designed, flexible properties in urban settings that real estate investors seek. This high-quality space is crucial to Atlanta’s economic growth, enabling the city to land corporate relocations in sectors such as technology and health care.
We can expect the heightened investment activity in Atlanta to continue. Frankly, I’m a bit surprised it took this long for Atlanta to be “rediscovered,” but a late-inning rally tends to be more satisfying.