If you want a detailed, understandable breakdown of the economy and its impact on the commercial real estate markets, there are few people better to turn to than Kevin Thorpe, the chief economist for the commercial real estate services firm Cassidy Turley, which opened an Atlanta office last year and is a valued friend of Hartman Simons.
We recently got a chance to talk with Kevin about the health of the metro Atlanta economy and the city’s commercial real estate markets. We know you’ll enjoy his analysis. You also may be surprised to learn what his favorite movie is (hint: it stars a very hirsute Michael J. Fox).
Thorpe: Short term, cautiously optimistic with an emphasis on the word “cautiously.” Long term, as bullish as an economist can get. In the short-term, the subtle signs of recovery are there. Job growth is trending up, unemployment is trending down, demand for office and industrial space is quietly trending up, and vacancy is quietly trending down. It’s far from even: Class A product in many cases is the only product leasing up, but the general trend is one of slow improvement. Challenges remain, particularly the ongoing housing foreclosure crisis in Atlanta, but even on that front, signs of improvement are observable in stronger home sales and slowing delinquency rates.
A diverse economy and above all population growth are two strong reasons why Atlanta’s economy will bounce back, as it always does.
HS: What are the current strengths and weaknesses of the overall Atlanta commercial real estate market?
Thorpe: Strengths: No major rent spike during the boom. Office rents only rose 7 percent during the strong years (04-07). This will help rents avoid a free fall and should lead to quicker stabilization and better deal flow.
Another strength is the sheer office space demand numbers that Atlanta can put on the board very quickly. People forget Atlanta was averaging 4 million square feet of net absorption annually prior to the recession – huge numbers relative to most metros. On the industrial side, there is healthy demand related to manufacturing, technology, and the traffic to and from the airport and the Port of Savannah.
The weakness is oversupply. Atlanta had 11 million square feet of office space under construction when the recession struck. It will take time and solid economic growth to lease up that space – a solid 2 to 2.5 years until full recovery is reached.
HS: How long until the city's residential housing market becomes healthy once again?
Thorpe: If we define healthy as home price stabilization, then Atlanta is actually closer than most people realize. The existing inventory is already coming down. At its worst, the months supply of homes on the market in Atlanta was 18 months. It is now at 8.5 months. Normal is 6 months, so it is making progress. Assuming the recovery continues at its current trajectory, 2012 will be the year of better home sales, 2013 will be the year of home price stabilization and slightly improved new home construction, and 2014 will be the year of some home price appreciation and much stronger new home construction.
HS: We'll cheat a little and ask three quick personal questions in one: Favorite book? Favorite movie? Favorite musician?
Thorpe: Favorite book: Anything that involves wizards. If I couldn’t have been an economist, that’s what I would have been.
Favorite movie: Hard not to choose “Top Gun,” so I will choose “Teen Wolf.”
Musician: I’ll instead offer you a decade: the 1980s, when all dance moves and hairstyles were deemed acceptable.