Retailers Fight for Space Across Metro Atlanta

Remember the “retail apocalypse”? Today, the story seems very different.

Retail is currently considered by many to be the hottest sector in the commercial real estate industry, in part due to historically low vacancy rates and rising rental rates. Atlanta’s retail vacancy rate has fallen to 3.6%, the lowest rate on record, according to CoStar Group. The low vacancy rate, coupled with an extremely limited supply of new retail space being developed due to high construction costs, has created a market unlike any seen in a long time.

Rising construction costs and interest rates have made it prohibitive to build traditional malls. However, grocery-anchored retail is an anomaly, with Publix leading the way. Several mixed-use developments with a significant retail component are also underway, including High Street in Dunwoody, Medley in Johns Creek and Centennial Yards in downtown Atlanta, to name a few.

Additionally, some retail space has been taken off the streets as malls reinvent themselves. Examples include the partial demolition of North DeKalb Mall in Decatur to make way for a new mixed-use development known as Lulah Hills; Northlake Mall in Tucker, which filled its anchor space with Emory Healthcare; and North Point Mall in Alpharetta, which will demolish a substantial amount of existing space as part of its redevelopment pending city approval.

Retailers have had to get more creative than ever to keep growing. Burlington, for example, worked with landlords to tear down sections of underutilized small stores to build its new, smaller prototype, as they did at Griffin and Hiram. There are very few spaces available for big box retailers, creating a highly competitive market. Tenants are not only keeping an eye on upcoming lease expirations, but also on spaces occupied by retailers that are at risk of closing their doors.

Several weaker, highly leveraged retailers have filed for bankruptcy. However, landlords in these cases typically have multiple backup offers pending and are waiting for the current tenant to misstep. The Bed Bath & Beyond bankruptcy is a perfect example of strong demand from big box retailers. Burlington stepped up to the plate and acquired four of Bed Bath & Beyond’s Atlanta-area leases at auction.

When a retailer takes over a lease at auction, rent payments begin almost immediately and the retailer must live with a lease that was negotiated years ago between the now-defunct tenant and landlord. Other retailers that have taken over former Bed Bath & Beyond locations in the metro area but worked directly with the landlord include Nordstrom Rack, Planet Fitness, HomeGoods, BrandsMart USA, Boot Barn and Bloomingdales Outlet, among others. While a handful of Bed Bath & Beyond locations remain available throughout the metro area, most have deals in progress.

Demand for single tenants and outparcels is at an all-time high. A large majority of single tenant activity has occurred in the suburbs where land is more plentiful, although local municipalities have become increasingly picky about zoning, permitting and design approvals. New-to-market concepts such as Whataburger and Raising Cane’s continue to expand aggressively throughout the metro area. Other concepts are beginning to emerge in the market with multiple locations planned, including Salad and Go and Dutch Bros Coffee. Banks (Fifth Third, Chase), restaurants (City BBQ, Miller’s Ale House, Jim ‘N Nick’s, Chipotle, Chick-fil-A), gas stations (RaceTrac, QuikTrip) and coffee shops (Dunkin’, 7 Brew, Starbucks) have all recently opened new locations around Atlanta and continue to expand.

That said, not all users of outdoor spaces are equally successful. Car wash concepts have grown rapidly in recent years, but markets have become saturated and the investment market for this use has slowed. The development of multi-tenant buildings in outdoor spaces has also slowed considerably due to high construction costs.

While retail is currently a promising sector in the commercial real estate sector, it still faces headwinds and uncertainty. Retailers that have committed to opening a number of new stores will struggle to find suitable space in the coming years unless there is a substantial shift in supply. Whether it is falling construction costs, stabilizing interest rates or a new wave of retail bankruptcies, something will have to change to keep the momentum moving in a positive direction.

— By Kyle LeCain and Cheryl Routson Champion, Senior Vice Presidents and Partners at TSCG. This article originally appeared in the July 2024 issue of Real estate company in the South East.