Following a dismal performance in 2001, the office and industrial markets in Atlanta are expected to remain weak through at least the first half of 2002. Two top executives at Carter & Associates-ONCOR made that prediction at the company’s annual forecast breakfast in Midtown Atlanta Tuesday morning.

"The opportunities seem limited in the short run," said Bob Peterson, executive vice president of brokerage and corporate services for the Atlanta-based development company.

On a positive note, company president Tom Senkbeil predicted that the Atlanta office and industrial sectors will rebound in the second half of the year. "Recovery is around the corner, and hopefully we have a lot to look forward to," he said.

In the short-term, there is plenty of reason for concern in Atlanta. Senkbeil pointed out that the 14.9% vacancy rate in metro Atlanta in 2001 was the second worst vacancy rate among major U.S. office markets. And with 4.4 million sq. ft. of office space scheduled to be completed this year, the vacancy rate for offices could nudge above 20% for a brief period, he said.

The industrial market in Atlanta isn’t faring much better. The absorption rate for industrial properties dropped to about 500,000 sq. ft. in 2001 from 17 million sq. ft. of absorption in 2000. Senkbeil predicts absorption will increase to about 4 million sq. ft. this year.

Investment activity in the two sectors also plunged in 2001. Peterson said investment activity in the office sector dropped to $701 million last year from an average of $1.45 billion in investments over the five previous years. On the industrial front, Peterson also reported a huge dip in investment — $208 million in 2001 compared with an average of $408 million over the five previous years.

Still, Peterson and Senkbeil said there is cause for optimism, at least for the second half of the year. Peterson predicted that low interest rates, the evolution of creative financing arrangements in the industry and the overall health of the REIT sector should spur an increase in investments by the end of the year.

Speaking about the national economy, Jack Guynn, president and CEO of the Federal Reserve Bank of Atlanta, said the biggest challenge is figuring out "what the heck happened" to the economic boom and "what looms ahead."

"2001 will be remembered as the year in which the largest economic expansion in [post World War II] history met a very humbling end," he said.

He emphasized that the current recession can’t be blamed on repercussions from the Sept. 11 terrorist attacks. Instead, the downturn is a result of cost-cutting measures implemented by businesses, many of which were forced to reduce expenses after anticipated profits from technology investments never materialized.

Guynn predicted these and other cost-cutting adjustments should play themselves out by mid-year 2002. In addition, positive factors such as low interest rates and a decline in energy prices will spur the economy, he said.

"The U.S. financial system remains in very good shape," he said. "The conditions for healthy growth will be re-established."

But he added a word of caution: "A lot more is up in the air than I would prefer."