Ashley Thomas and Morgan Perkins were teaching baking classes and crafting their croissants and fruit galettes for local coffee shops out of Thomas’ home in Ormewood Park when the pandemic hit.
They decided to seize what looked like the opportunity of a lifetime to find a dedicated retail space in East Atlanta for their business, Galette. But the search for a storefront turned out to be an odyssey more difficult than they ever imagined.
After more than three years of searching, Thomas and Perkins signed a lease last month for 1,200 SF in Downtown Avondale Estates for Galette’s first location, expected to open this summer.
“It was very different than my expectations going into this,” Thomas told Bisnow. “With the pandemic, it was my expectation that [stores] would be closing. It was very much the opposite.”
Courtesy of Ashley Thomas and Gabriella Valladares
Galette co-owners Morgan Perkins and Ashley Thomas in Thomas’ home kitchen. The duo is opening a storefront in Avondale Estates.
Galette’s story is an increasingly common one in Metro Atlanta, where only 3.4% of the market’s retail space is vacant, according to Cushman & Wakefield, the lowest figure on record since the brokerage began tracking it in 2000. In the first quarter of 2020, vacancy was 12.3%.
“There’s just a dearth of space,” said Penelope Cheroff, founder of The Cheroff Group, one of Metro Atlanta’s most prolific restaurant brokers.
Landlords have been able to hold out for tenants with long track records or who want bigger spaces, putting the squeeze on small businesses. Galette ran into landlords whose spaces were larger or pricier than Thomas and Perkins could afford.
The average asking rent of almost $18 per SF is near the all-time high and has risen by roughly 25% since 2019. In some areas, brokers say landlords are seeking rents more than twice the regional average.
Boosting landlords’ confidence is the lack of competition. Roughly 1M SF of retail space was taken up in Atlanta last year, Cushman & Wakefield Research Manager for Atlanta Audrey Giguere said, but there is just 227K SF of retail space under construction in the region, the lowest figure in at least a decade.
Metro Atlanta’s retail economy has been fueled by the same story that has led to an economic boom across the Sun Belt: population growth and in-migration of new residents from the Northeast and West Coast. The 11-county region added more than 66,700 residents year-over-year as of April, according to the Atlanta Regional Commission, pushing its total population to more than 5.1 million.
Despite recent economic headwinds, Georgia consumers are continuing to spend money. Gross sales and use tax collections hit $1.5B last year, a 2.8% increase over 2022, the Georgia Department of Revenue reported.
With added population and increased spending, retailers are striving to grow their store counts, hunting for new locations. But finding those sites has increasingly become the top issue facing retail real estate professionals.
“The limited vacancies are really causing some difficulties for retailers who are looking for space to grow into,” Giguere said. “According to our brokers, that’s the biggest thing they’re facing right now.”
Skyline Seven Real Estate Senior Vice President Ryan Holzer said Atlanta’s crowded retail marketplace is a result of the lack of new development. Interest rate hikes have chilled lending markets for all commercial real estate development, even in cities and sectors with historically low vacancy, he said.
Just 388K SF of new retail space delivered last year, mainly in the form of freestanding retail stores, grocery-anchored strip centers and mixed-use projects, according to Cushman & Wakefield.
Developers are underway on even less new space. More than half of the existing construction pipeline is in the 150K SF coming to GID’s High Street Atlanta project in Central Perimeter.
“Considering the only real development you’ve seen in retail the last eight years has been mixed-use or lifestyle, there hasn’t been hardly any spec retail anywhere,” Holzer said.
The lack of new retail space has retailers competing to take space before it even hits the market, said Kim Dart Heidt, a principal with the retail brokerage firm Dart Retail Advisors.
The Shops at Walnut Creek, a 46K SF Publix-anchored retail center underway in McDonough, was fully pre-leased before construction to retailers including Sage Dental, a salon and Great Clips. The project, which Dart marketed for lease, is set to open later this quarter.
“We could have built more shop space and leased that,” Dart Heidt said.
That is forcing retailers to go farther from the heart of Atlanta’s population center to open new units. Discount retailer Five Below signed a new lease in an Ingles-anchored shopping center in Ellijay, a suburban city some 75 miles north of Downtown Atlanta.
“When Five Below was entering the market, they were looking for power, primo shopping centers in the metro market,” Holzer said. “Retailers are taking sites that they would never have taken years ago.”
Despite retailers’ desire to grow in the region, activity has slowed with the lack of available space and rents that have become too high for many to swallow.
Leasing activity totaled 3.9M SF last year, according to Cushman & Wakefield, down nearly 24% from the 5.1M SF leased in 2022.
While most of the drop was attributed to the lack of availability, many retailers are opening smaller-than-expected locations, said Edie Weintraub, CEO of the retail and restaurant brokerage firm Terra Alma. Shrinking store footprints are helping retailers achieve cash flow sooner with new locations, Weintraub said.
“They say orange is the new black,” she said. “Well, less space is the new black.”
Demand has driven an unprecedented rise in rents in Metro Atlanta, especially among restaurant tenants. Dart Heidt said some landlords are charging $40 per SF for restaurant spaces in the suburbs, and tenants are signing up.
“We are seeing restaurants especially doing very high-volume sales in the suburbs,” she said. “That’s something new. The numbers we’re seeing out in the suburbs are the kind we’re seeing in the city.”
But overall, despite the shrinking vacancy, average rents have begun to come down as retailers push back on the sky-high rates.
Triple-net asking rents eclipsed $18 per SF in the second quarter of 2023 but dropped in Q3 and Q4 to end the year at $17.92 per SF, according to Cushman & Wakefield.
Cheroff said developers and landlords are becoming more realistic with rents as retailers push back.
“I’ve seen projects where there’s no way a tenant would pay $50, $60 a SF. That just blows my mind,” she said. “The smart ones, at least, are willing to do deals that work for the tenant. They have got to get what they can because retailers can only do so much sales.”