Two million visitors and athletes from around the globe are slated to converge on Atlanta this coming July 19th through August 4th to celebrate the 100th anniversary of the modern Olympic games. And when they get here, they will find (if they check it out) a commercial real estate market that is enjoying its strongest performance in years.
After a lull in the early-1990s, the metro Atlanta marketplace is creating new jobs at a phenomenal pace. Demand for new office space, which has become a scarce commodity in many submarkets, is soaring. The same holds true for the industrial market, where developers are scrambling to meet users' needs. Retail space has been filling up as quickly as it is being built, although some rumblings about overbuilding are beginning to be heard. And in the apartment market, rents and sale prices are UP, even as more product comes on line.
The 1996 Centennial Olympic Games will have "tremendous benefits that will serve Atlanta well on a long-term basis," says Morris Ewing, a partner with Charlotte, N.C.-based Faison. "The work done on rebuilding our transportation infrastructure in preparation for the Games will prove invaluable for the metro area's future growth."
Even more important is the heightened visibility afforded Atlanta by its hosting of the Games. The Olympics have made Atlanta an international city," says Ewing. "There was a time when only Los Angeles, New York and Chicago were recognized by people in Europe or the Middle East as major U.S. markets - but with the Olympics, Atlanta has joined those ranks," he says. Because of the metro area's newfound prominence on the international scene, Ewing says, "I foresee can increasing number of companies considering locating here because of our international reputation, along with a spurt of foreign investor interest that has already begun."
The Games will have a brief impact on metro Atlanta job growth, which has been advancing at a rapid pace for the past two years. According to economist Donald Ratajczak, director of the economic forecasting center at Georgia State University in Atlanta, approximately 96,000 new jobs were added to the metro Atlanta employment market in 1995, a figure equaling that of 1994 and bringing total employment in the area up to 1.8 million. "We expect 1996 to be a record year for job generation," Ratajczak says, with more than 100,000 new jobs projected to come on line during this period. Many of these jobs, i.e. those that are directly Games-related, will evaporate after the Olympics, though, resulting in a net increase of around 95,000 for the year.
Atlanta's central business district is the prime beneficiary of whatever spin-off benefits are garnered from the Games. Downtown as a whole is enjoying a wave of public-and private-sector redevelopment activity, including a lion's share of the $2 billion worth of Olympics-related building in the metro area.
The rejuvenation of downtown, combined with a general lack of office space in the Atlanta area has spurred activity in its office market. According to statistics from Atlanta-based Richard Bowers & Co.firm, downtown accounted for 228,000 of the 1.7 million sq. ft. absorbed by the Atlanta market as a whole in 1995, bringing its occupancy rate up to nearly 90%. "I'm sure downtown is going to draw even more office tenants," says company president Richard E. Bowers. "It has excellent blocks of available space," he says, "that are priced very competitively at $5 to $6 per foot less than the suburban submarkets."
Both a lack of space and higher rental rates in suburban Atlanta office markets made 1995 a great year for office leasing in downtown says Mike Shelly, president of The Parthenon Group, Atlanta, leasing and marketing agent for the 2.2 million sq. ft. Peachtree Center mixed-use complex. "We are seeingfrom both the Buckhead/Lenox and North Central markets," Shelly says. "Available space in those markets is scarce, and we're seeing rates jumping into the low- to mid-$20 range, which opens up the opportunities for lower-priced downtown office buildings to compete well for prospective tenants."
"Tight suburban markets definitely work to the benefit of downtown," agrees Lee Nelson, vice president of One Peachtree Center, Atlanta. Activity from suburban tenants, along with 1995's 260,000 sq. ft. move-in and subsequent expansion by downtown Atlanta-based SunTrust Banks, has whittled the available space supply here to around 23,000 sq. ft. maximum contiguous, he says, adding that "this activity in 1995 has taken us from being the 800-pound gorilla on the market to just another high-quality Class-A building."
"The office leasing market is good in downtown," says J. Carter Simmons, vice president of Atlanta-based White & Associates, from his vantage point at the newly renovated 325,000 sq. ft. 270 Peachtree building. In 1995, his company leased 180,000 sq. ft. to the Atlanta Committee for the Olympic Games (ACOG) and 30,000 sq. ft. to The Southern Co. in a corporate relocation from the northern Atlanta suburbs. "The Olympics have been a shot in the arm for the downtown office market," he says. "But, there are various schools of thought about what the climate will be after the Games."
The uncertainty about what happens after the Olympics leave town revolves around the fact that ACOG will be vacating around 500,000 sq. ft. of downtown office space starting in September 1996, says Simmons. He is optimistic about the situation. "As the suburban markets continue to tighten up, downtown will continue to get its share of attention from office space users."
Downtown lost the interest of one major office space user in a move that will work to the benefit of the 10.9 million sq. ft. Midtown market to its immediate north. In late 1995, the Federal Reserve Bank of Atlanta, headquarters of the nation's sixth Federal Reserve District, announced it would move its center of operations from downtown to an 11-acre site in midtown. A 700,000 sq. ft. headquarters will open on the site in 1999, where some 1,100 federal employees, who are currently spread primarily in downtown locations, will work. "The Fed will be great for Midtown", says George McKenney, senior vice president for Atlanta-based CARTER. "The fact they selected Midtown' is very positive in itself, given all the alternatives they had," he says.
The new building will definitely have a positive impact on Midtown," agrees John Heagy, managing director, office division, for Faison. "It will help tie various parts of Midtown together very nicely, creating activity and getting people out and about" in what is now an underdeveloped portion of this submarket.
According to year-end 1995 statistics generated by Bowers & Co., the Buckhead/Lenox market's 8.9 million sq. ft. office inventory is operating at the 94.4% occupancy level. The Class-A portion of this market is a scant 4.2% vacant, with quoted rental rates averaging $23.11 per sq. ft., highest among all metro Atlanta markets.
Anchored by the 1.6 million sq. ft. Lenox Square regional mall and 822,000 sq. ft. high fashion Phipps Plaza, Buckhead/Lenox has a reputation as an "upscale" office market, making it attractive to a lot of image-conscious users. "The Buckhead/Lenox image means a lot to the companies that are taking space there," says Brett Hunsaker, senior vice president and regional marketing/leasing manager for Koll, Atlanta. Much like Los Angeles' Century City office submarket, "Buckhead/Lenox is seen as Atlanta's high-end market, and it is finally getting the rental rates that go along with that kind of image."
The scarcity of available space has caused rental rates for Buckhead office space to skyrocket. With Class-A space in short supply, users are now bidding up the price of the area's Class-B space, according to Duncan Gibbs, vice president, corporate services, for the Atlanta office of Grubb & Ellis. "We've seen a real narrowing of the gap between Class-A and Class-B rental rates," he says. "Because of the current balance between supply and demand, this gap has narrowed to the point where the differences between Class-A and Class-B space become purely subjective - you can't differentiate between buildings on the basis of price anymore."
There's some relief for users on the way, however, in the form of a wave of new and/or renovated office buildings coming into the market in the next two years. The 24-story, 575,000 sq. ft. Monarch Tower is slated for completion in early- to mid-1997. "We are 50% leased and have three square feet worth of proposals out for every square foot available," reports Gail Peeler, who is vice president at COMPASS Management and Leasing Inc., Atlanta.
Meanwhile, Atlanta-based Brannen/Goddard Co. has completed a major renovation of the 370,000 sq. ft. Lenox Towers, which is now 80% leased, according to the company's real estate services vice president Steve Proctor. Lenox Plaza, a 95,000 sq. ft. building adjacent to Lenox Square, is now near completion of an extensive interior and exterior renovation, according to David Jones, vice president/director of marketing for the Atlanta-based Frank M. Darby Co. And nearby, at the comer of Peachtree and Lenox roads, a 268,000 sq. ft. office structure is undergoing a comprehensive renovation. Two Live Oak Center is part of the redevelopment of the entire block on which it resides, according to R.A. "Bo" Jackson of Hines, Houston, the redevelopment, construction, leasing and property manager for what is known in total as the Peachtree at Lenox project. Renovation of the building is set to be completed during the fourth quarter of 1996, says Jackson, which will result in "a significantly improved non-trophy, Class-A building of the 1990s," with rents "some 10% to 15% lower than other "Class-A buildings in the market."
There's also new development activity foot in the 165-acre Lenox Park mixed-use development. Project developer Technology Park/Atlanta Inc. is proceeding with Lakeside, a 154,595 sq. ft., seven-story office building, according to Lenox Park Associates project manager Michael Pelt. World Travel Partners, already a tenant in Lenox Park, will anchor the new structure with a 30,000 sq. ft. expansion of its facilities.
Suburban office building boom(let)
Year-end 1995 statistics from Bowers Co. show a 56.9 million sq. ft. suburban Atlanta office market operating at a 92.5% occupancy level. Quoted rental rates for Class-A space in suburban submarkets average $21.47 per sq. ft.; meanwhile, the suburban market as a whole accounted for more than half of metro Atlanta's 1.7 million sq. ft. of absorption during 1995. "Due to continuing rental rate increases and a lack of space availability," says Bowers, "numerous office developments are under way, both under construction or in the planning stages for construction in the near term."
The development action is hottest in the upper Georgia 400 corridor, where the existing 2.3 million sq. ft. market is less than 7% vacant. Leases have been signed for much of the 132,000 sq. ft. of space in the recently completed 100 North Point Center East, the first of four buildings planned for this site adjacent to North Point regional mall, says Sam Durham, vice president/leasing for project developer Cousins Properties, Atlanta. A September 1996 completion date has been set for a second building of the same size, he says, with tenant interest brisk but no preleasing as of this writing.
Meanwhile, Johnson Development Co. of Atlanta is building Mansell Overlook, a 161,600 sq. ft. office building west of Georgia 400, also near North Point mall. The project is scheduled for a summer 1996 completion, with approximately 75% of its space committed. And, an early 1997 opening is slated for 147,000 sq. ft. One Northwinds Center, an office development by Atlanta based Pope & Land located at the Ga. 400/Haynes Bridge Road interchange. There has been no preleasing as of this writing but, according to company vice president Jackie Gauthreaux, "We've seen interest from a multitude of 10,000 and 15,000 sq. ft. prospects and a good number in the-40,000 to 100,000 sq. ft. range."
In the 18.4 million sq. ft. midperimeter market, clustered about the Ga. 400/1-285 Interchange, Bowers & Co. statistics show a 93.8% office occupancy rate, which rises to nearly 96% for the Class-A portion of the market. And, with rental rates averaging a strong $20.10 for the market as a whole, the prospects for new development in this market are also improving. A December 1995 opening is on tap for Perimeter Place, an 85,000 sq. ft. office development by the Atlanta-based Griffin Co. Meanwhile, a second quarter 1996 groundbreaking is scheduled for a 250,000 sq. ft. addition to Lakeside Commons, according to Candice Flig, vice president/marketing for CNM Associates, Atlanta. And, at the Ga.400/Glenridge Road interchange, three 250,000 sq. ft. buildings are planned for Millennium Center, a joint venture of Dallas-based Prentiss Properties and Atlanta-based WRL Inc.
Other office markets
In the 15.6 million sq. ft. Cumberland/Galleria office submarket clustered about the 1-75/1-285 interchange, where Bowers & Co. pegs occupancy at 92% and average rents at $18.40, Cousins Properties has begun construction of an additional three buildings, totaling 450,000 sq. ft. to 500,000 sq. ft., at the 2.1 million sq. ft. Wildwood Office Park, according to senior vice president John Murphy. The 250,000 sq. ft. first phase is preleased to the tune of 227,000 sq. ft. to Georgia Pacific. Meanwhile, a mid-1997 delivery 1997 is scheduled for an eight-story, 220,000 sq. ft. addition to Pope & Land's Cumberland Center office project.
Further north along 1-75 near Town Center regional mall, a speculative office market is slowly emerging, says Kerry O'Brien, senior vice president of Atlanta-based Taylor & Mathis. His firm is developing Town Park Commons, a development comprised of four, four-story, 85,000 sq. ft. speculative office buildings. And nearby, site work has begun on Barrett Lakes Center, a 118,000 sq. ft., five-story office, according to Pope & Land vice president Mason Zimmerman.
Also, LaSalle Partners has signed on Xerox Corp. as the latest tenant at Overlook Ill on Paces Ferry Road in the Atlanta area of Vinings. Xerox located its regional Southern Customer Operations service group of 40 employees to Overlook Ill effective April 1996.
Industrial market notes
According to Atlanta-based King Industrial Realty's fourth quarter 1995 Industrial Availability/Activity Report, the 317.7 million sq. ft. Atlanta industrial market is operating at the 12.2% vacancy level. The 13.7 million sq. ft. service center sector, once noted as "a forgotten stepchild" of the market, isn't in such bad shape anymore, registering a 9.3% vacancy rate. Net industrial absorption for 1995 totaled 13.4 million sq. ft., the report notes, a figure just exceeding the market's banner year in 1994, when 13.3 million sq. ft. were absorbed. New construction during 1995 totaled some 15.5 million sq. ft., the report adds, "the highest level of new starts in the past five years."
Demand for Atlanta-area industrial product is strong, according to Ernie Baker, vice president/commercial properties for Richard Bowers & Co., because the economy is still expanding, businesses are doing well, and they all want to be in Atlanta because of the business climate and transportation infrastructure." After a lag in 1994 and 1995, supply is starting to meet demand he notes, and at current construction levels, could catch up by mid-1997."
"As long as the activity we're seeing continues, construction should remain strong," says Scott Helms marketing director for Industrial Developments International, an Atlanta-based developer with some 700,000 sq. ft. of space under way in projects throughout the metro area.
Some constraints to new development are making themselves felt, though.
"In closer-in areas, a lot of the 10-to 15-acre infill industrial sites are gone - they were sold in 1995," Helms says. "This means that in order for developers to find sites to build on in many areas, such as Gwinnett County, they will have to make a major land play just to get into the market."
In the face of continuing strong demand new industrial projects are cropping up all over suburban Atlanta. According to Bruce Logue, marketing vice resident for the Weeks Corp., an Atlanta -based industrial REIT, speculative industrial projects by this company include a 140,400 sq. ft. office/distribution building at Town Point in the 1-75/575 Town Center area; a planned 223,000 sq. ft. multitenant distribution building in Gwinnett County's Horizon industrial park; and a 201,600 sq. ft. bulk distribution facility under way at the 43-acre Berkeley Lake bulk distribution park, also in Gwinnett.
Recently, Sunkyong Group's SKC Ltd., based in South Korea, announced plans to introduce $1.5 billion in manufacturing property into Georgia over a 10-year period. SKC's initial plans are to build a $250 million polyester film manufacturing facility on 400 acres in Covington, Ga., 35 miles east of Atlanta. It is expected to employ 250 workers when it's completed in early 1998. Later SKC plans to spend $1.25 billion more to expand into the manufacturing of other products. The venture is eventually expected to employ 1,000 workers.
Industrial projects under development in the upper Ga. 400 corridor include The Meadows at Bluegrass, where Childress Klein has completed two speculative office/distribution buildings and has two more on the way for a total of around 321,000 sq. ft., according to company partner John Decker. Demand for industrial space appears to be strong in the corridor, and "supply and demand appear to be in balance in the Atlanta market as whole," he says. This balance is due, explains Decker, to the facts that "the economy is strong, business is good, and nobody is doing anything stupid as far as either developing or lending on development."
The 91.5 million sq. ft. of regional mall, community, neighborhood and strip centers that make up the Atlanta retail market are operating at an average vacancy rate of 8.4%, according to Bowers & Co. There is approximately 2.7 million sq. ft. under construction, with some 2.1 million sq. ft. reported as preleased.
Driven largely by the growing needs of big-box/category killing retailers and a veritable war among grocery chains jockeying for market share, the Atlanta retail market has been growing rapidly during the past several years. According to Ben Carter, president and CEO of Ben Carter Properties and CNM Associates, Atlanta, 13.9 million sq. ft. of retail space was added to the Atlanta inventory from 1993 to 1995, with another 3.5 million projected for 1996; the bulk of this new development, he adds, has been in the form of grocery-anchored strips and big-box-anchored power centers.
"Atlanta is getting overbuilt in terms of the amount of space being added to the market," says Carter. "The overall vacancy rate is still healthy, but that is because most of the new development has very little small-shop space," he says. "So, while overall vacancy and rental rate data doesn't reflect overbuilding condition, I think Atlanta overall has added a tremendous amount of new retail square footage, which probably causes it to be overbuilt in terms of retail square feet per capita."
"I am concerned about overbuilding retail space in Atlanta," says Faison's Ewing. "There has been a significant amount of building here, primarily driven by power centers and the entry of Public into the grocery store market." The level of new construction has gotten to the point, Ewing says that "while there will continue to be some opportunities, you will see the market slow just because of the amount of space we have built in the past couple of years."
"We think grocery store-driven development will continue into 1997," says Carter, "but power centers will start to slow down." Some of the big-box tenants are starting to overlap locations, he notes; in addition, "most of these tenants who have had Atlanta targeted as part of their expansion strategies have already made their moves."
John Euart, executive vice president of Branch Properties L.P., an Atlanta-based company formed by a partnership led by Branch and Associates, also sees a slowdown in retail construction in Atlanta. Branch Properties is currently developing two Public-anchored shopping centers as well as some other new projects, but he says that new development is beginning to top off, which is "going to afford us more opportunities for redevelopment."
Now that the Olympics are almost here, Euart says, the construction period in anticipation of the Games is past. "A lot of people are trying to finish up their projects (for the Olympics)."
But there will continue to be construction in Atlanta once the Olympics are gone. Carter's firm, in a joint venture with the Atlanta-based Scott Hudgens Co., plans to develop a new regional mall in Gwinnett County. The site is located roughly 12 miles north of the existing Gwinnett Place Mall, at the junction of I-85 and Ga. 20. A February 1999 opening is slated for the mall, says Carter, which will feature 1.5 million sq. ft. of space, six department stores, a 100,000 sq. ft. movie theater and an adjoining 150,000 sq. ft. entertainment village.
"I see about 5,000 units being delivered in Atlanta in the first half of 1996 and about 6,000 the rest of the year, says Eduard de Guardiola, principal and managing director of Focus Group Inc., an Atlanta-based multifamily real estate firm. The fact that Atlanta has been creating some 100,000 jobs annually for the past two years, "tells you that we can absorb about 12,500 units per year, and we didn't deliver that many in either 1994 or 1995," says Guardiola. Given the projections of 1996 new employment, he says, "I believe that this market has some pent-up demand created by job growth."
Look for some 90% of these new units to come on line between 1-75 and 1-85 North, says Jay Clark, president of Atlanta-based Apartment Realty Advisors. "A lot of the newer properties here are being absorbed at a rate of 30 to 50 units per month, which is a very good rate."
In the investment arena, "higher rents, firm occupancies, favorable costs of debt capital and higher grade assets for sale," all help account for increases in Atlanta-area apartment prices, according to CB Commercial senior vice president Malcolm McComb in the Atlanta office. 1995's average per-unit price for newer properties was up to $58,200, vs. $48,400 in 1994, he says; for properties more than 10 years old, the averages were $26,600 and $19,600 respectively.
1996 has opened with "feverish buying and selling activity," says Clark. The product of choice is "anything from Class-B to A-plus," he says, with a universe of buyers that include "pension funds, syndicators, developers and a few REITs - in that order." Clark adds that sale prices are up this year. "You're seeing pricing for Class-A product anywhere from $47,000 to $80,00 per unit," he says, with most activity occurring in the $40,000 to $60,000 range.
As far as the Olympics impact on the market, it is creating "more of a positive perception rather than a major impact on the multifamily market," says Ron Cameron, vice president of business development in the Atlanta office of SPL/LEDIC Corp., Memphis.
"We haven't seen any particular impact on us (from the Olympics)," says John Glover, president of Atlanta-based Post Properties Inc. But, he says, only time will tell if the demand for a lot of the new downtown properties will remain strong after the Games.
Cameron says the reasons for the multifamily market's good fortune is based more on the strength of the city itself rather than the upcoming Olympics. "The biggest reason we've had such good multifamily business is related to supply and demand - continued job growth and movement into the area.",*> which will feature 1.5 million sq. ft. of space, six department stores, a 100,000 sq. ft. movie theater and an adjoining 150,000 sq. ft. entertainment village.
Olympic hospitality market heats up
As the Atlanta-area hotel market anticipates the coming of the 1996 Centennial Olympic Games, it is experiencing slightly increasing occupancy rates, rising rental rates, a spate of new construction and an increasing volume of sales.
According to a year-end 1995 survey of the Atlanta hotel market by Landauer Associates Hospitality Group, occupancy stood at 71.1%, a nominal (.7%) increase over year-end 1994. Room rates, however, rose some 7.4% during 1995, jumping from an average $73.74 to $79.19.
There is also a wave of new hotel construction hitting the metro area, says Mark H. von Dwingelo, director of Landauer Associates Southeast Hospitality Group, Atlanta. Some geographic sectors of the market are in danger of being overbuilt, he notes. "Gwinnett County's 1-85/Pleasant Hill Road has had a lot of limited-service product added recently, basically doubling its inventory," says von Dwingelo, although, he says "room rates in that market are also increasing significantly."
"One reason we are seeing a lot of new hotel development in Atlanta is that there was nothing built between roughly 1988 and 1994," says von Dwingelo. While the supply of rooms remained stable during this period, demand grew, he says. "We're now seeing some catch-up building, with the question now being when does catch-up stop and overbuilding start."
The situation has been exacerbated by the coming of the Olympics, says von Dwingelo. What the Olympics have done in Atlanta is cause a lot of people to say, "If we are going to build hotel product, let's get done before the Olympics and catch that littlepop' in income," he says.
But, says Paul Jones, president of Hotel Partners Inc., Chicago, the Olympics aren't the actual cause of the new hotel construction in Atlanta. "If anybody really believes that, they wouldn't want to admit it. It's (the Olympics) too short term."
"As far as existing hotels are concerned, we really think things are pretty much balanced in Atlanta," Jones says. "The buyers realize that the Olympics a one-shot deal."
The hotel sales market also is active. "A lot of Atlanta-area properties are turning over these days," he notes. Prices for full-service, "upscale" but non-luxury properties are typically falling into the $75,000 to $90,000 range, say von Dwingelo. Meanwhile, mid-range properties are moving m the $35,000 to $50 range, and limited-service product is selling from the mid-teens to $35,000, he says. And, while the advent of the Olympics "isn't really impacting prices, it is creating interest on the part of buyers." On the seller side, "What is happening is that many potential sellers think they have agolden egg' to put on the market," he says but, at the same time, "I've seen a number of properties that have not changed hands because 'the egg' is not as golden in the eyes of the buyer."
Olympic-related activity to leave lasting mark on downtown Atlanta
In addition to a temporary swelling of the metro employment base and enchanced name recognition among members of the international business community, the 1996 Centennial Olympic Games will make a lasting impression on Atlanta's downtown.
Approximately $2 billion worth of Olympic -related building is taking place in the metro area in preparation for the Games - and much of it is occuring within the downtown Atlanta "Olympic Ring." Major projects include Games venues such as the $169 million Centennial Olympic Stadium, where track and field events and Olympic ceremonies will be held; a $12 million natatorium for Olympic swimming, diving and water polo events at Georgia Tech; and well over $100 million worth of construction of facilities for other Olympic events.
Non-venue construction currently under way includes the $169 million Olympic Village, providing housing for athletic teams and coaches; Centennial Olympic Park, a roughly $50 million downtown "gathering place" for the Games; a $27.4 million plaza connecting the Georgia Dome, Omni and World Congress Center; and nearly $50 million worth of pedestrian corridor improvements designed to link downtown Olympic activity centers.
A number of downtown redevelopment projects, designed to bring housing to the downtown market, are also under way. A variety of local developers are engaged in projects, all slated for completion prior to the Games, that include the $6.7 million renovation and re-use of the historic Muses clothing store block into 50 apartments and several retail stores; the adaptation of the ca. 1912 William Oliver Building at the corner of Peachtree and Matietta streets into 114 loft apartments at a reported cost of $10 million, and the $5 million conversion of the 20 Marietta Street (formerly the Georgia Federal) office building into 90 apartment units.
Olympic visitors will occupy many of these apartment units during the Games, and afterwards, locals will fill them up quickly, says David Haddow, and Atlanta real estate consultant. "I am convinced that there is tremendous demand for downtown housing." While some are skeptical, Haddow explains, "all the surveys that have been done among downtown employees show a tremendous interest in living downtown on the part of single, young marrieds and emptynesters." Additionally, he say, it is important to remember that all of these projects combined will result in well less than 300 new units placed on the rental market.
In the overall scheme of redeveloping and revitalizing downtown Atlanta, downtown housing opportunities are vital, says Haddow.. "It is what we need to get over the hump and make downtown a more attractive and habitable place. "
Retail plan is gold medal material for Hartsfield International Airport
Two and a half years ago, the E&Y Kenneth Leventhal Real Estate Group was asked by the Department of Aviation to assist Atlant's Hartsfield Airport in preparing its retail outlets for the Summer 1996 Olympic Games.
The firm was charged with redeveloping and repositioning nearly 200,000 sq.ft. of food and retail outlets to maximize city revenues, introducing a new level of customer service and rebuilding the overall image of the 15-year-old gateway to the South. EYKL's findings provide some good insight for the real estate industry:
* People want to buy in airports. Airports are not a shopping destination. Travelers don't want to purchase large items, but they are an "interested audience." Ninety percent of airport travelers want to ear at the airport but have problems finding food (or retail) worth purchasing.
* Airports don't lay out like malls. People don't move through airports like they do in shopping malls and, therefore, the retail component must be planned differently. According to EYKL research, the first thing travelers want to do is go to their gates. Once they're satisfied that there is extra time, they will look for purchasing opportunities. In a transfer airport like Hartsfield, the vast majority of travelers move from one concourse to another, never seeing many parts of the airport.
* Strees plays a role. The stress associated with traveling must be directly addressed in a successful retail plan. Travelers have a number of concerns - making their plane, getting stuck in a middle seat, even the safety factor for flying has a subconcious affect. That's why "stress relievers" like Houlihan's piano bar (reminiscent of a four-star hotel lounge) were incorporated into Hartsfield's plan. A bookstore/cafe was designed to be a respite in another concourse.
* Prices are historically too high. Because airports have historically charged well above market rate for food and products, people have been reluctant to buy. All Hartsfield product retailers were required to sell products at "market basket" or market rate. Food and beverage retailers could price no higher than 10% above market rate. Bottom line, no more $7.00 hot dogs.
* Airports don't cater to their employee base. Hartsfield, the second busiest airport in the world with an employee base of 10,000, has a huge built-in consumer base. It was critical that the retail plan appeal to this repeat and longterm customer. The Atrium, the new glass-domed development at the airport's entry, is the key location for services, including a drug store with pharmacist, shoe repair, hair salon and dry cleaner, shopping and a large food court.
Hartsfield has numerous national, regional and local tenants, all gearing up for their completion date, just weeks before the Games begin; many are already seeing Olympic results.