When Will the Market Bust Again?

NAIOP Chairman Steve Martin Talks to

January 22, 2015

NAIOP Chairman Steve Martin, managing principal with SDM Partners in Atlanta, sat down with to share his take on the market and where we are in the current cycle. You've got over 30 years of experience in commercial real estate. How would you describe where we are right now? How does this time compare to cycles past?

Martin: The industry is always cycling by both product type and market. At this point in the cycle, multifamily has been through its surge, industrial is continuing to pick up steam and is hot, and a swell of office demand has started in select markets, but is yet to come in most. Compared to the previous cycle, I’d say we are equivalent to around 2004-2005, with three or four more years—maybe five, if we’re lucky—until we head back down. Atlanta's commercial real estate market has recovered on all fronts. How competitive is it getting among investors to make strategic acquisitions?

Martin: Atlanta is very competitive, much like other larger metro areas. The distressed deals we all bought in the past three or four years are all gone—there’s no more low-hanging fruit. The bar has been raised with the margin for error reduced. If one wants the higher yields, they most likely need to look to development. We're seeing more developers, particularly industrial developers, eyeing Atlanta and its suburbs. Is now the right time to develop more in Atlanta? Is it just industrial or is the office segment ripe for new development.

Martin: If you are just now eyeing Atlanta for industrial development, you are probably late to the game. Sites and land are hard to come by and, in almost all cases, are controlled by those plugged into Atlanta and likely already building here. If you want to be out in front of what’s next in our market, office will be, on a limited basis, the place to play … but be careful. Office development is not for the faint of heart due to the high costs and correspondingly high rents required. The issue in the future will not necessarily be over-building of office, but lack of demand and/or economic strength. On the other hand, industrial could have supply issues given the amount of construction already underway.

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