The Atlanta metro has been named one of the top cities for job growth and the population is rising at one of the fastest paces in the country, creating high demand for rental housing that will persist. Last year, an average of 200 residents per day moved into the area, and nearly 21 percent of the entire metro population falls within the prime renter cohort, which includes people between 20 and 34 years old. Uncertainty in the housing market is driving up the age of the first-time homebuyer. As many young adults form rental households in lieu of ownership, they will likely choose to live in modern, luxury apartments near entertainment and business districts. Meanwhile, in the single-family market, permitting activity remains well below prerecession levels and sales of existing single-family homes are just 57 percent of peaks reached before the recession, confirming that many of these new residents are looking for rentals.
Atlanta: One of Top Apartment Markets in U.S. as Job Growth Intensifies
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Apartment construction is at an all-time low this year, and demand for units will outpace new supply by more than seven times. As a result, vacancy will fall to the lowest point in over a decade, allowing operators to boost rents and match prerecession peaks.
Looking at supply and demand fundamentals, developers completed just 500 units during the past 12 months, slowing dramatically from the previous year when additions to inventory totaled 2,050. Multifamily permitting issuance surged 78 percent during the last year as developers obtained 4,000 permits. The Regency at John’s Creek Walk in the Roswell/Alpharetta submarket was the largest completion in the last year, bringing 193 luxury apartment units online. There are more than 2,500 units under construction with completion dates scheduled through the end of 2014. Another 16,500 units are in the planning phases.
Employers added nearly 25,100 jobs in the last year, and the rising population across the metro increased demand for apartment units. As a result, vacancy plunged 140 basis points to 7.1 percent in the third quarter. Vacancy for Class A units dipped to 5.1 percent, a 150-basis point drop year over year. Vacancy for top-tier apartments is pushing below pre-recession levels and is at its lowest point in over a decade. Job growth in the retail sector is creating demand for lower-tier units in the metro. As a result, vacancy for lower-tier properties slid 120 basis points in the last 12 months to 9.3 percent.
As vacancy pushed to a new low, operators were able to lift metro-wide rents. Asking rents ticked up 1.5 percent during the last year to $853 per month, inching closer to peaks set before the recession. Increased demand for apartment units across all classes allowed owners to raise effective rents 2.5 percent in the last four quarters to $773 per month, decreasing concessions to an average of 34 days of free rent. Class A units are driving rent growth across the metro and asking rents grew 1.3 percent in the last year to $970 per month. Asking rents for lower-tier properties climbed two percent to $721 per month.
Improved operations are encouraging investors, and sales activity will remain fierce into next year. The number of institutional-grade buyers jumped 32 percent, and the increasing number out-of-state investors contributed to an enlarged buyer pool.
Compressed prices, compared with the nation, and easier access to financing due to advancing property operations, is bringing many investors off the sidelines to buy stabilized properties with cap rates starting in the mid-6 percent range.
There are still many opportunistic investors chasing value-add deals as banks unload reclaimed assets, though inventory of these property types is shrinking as we head into the new year. Institutional-grade buyers will continue seeking properties in Atlanta, and these assets are selling with cap rates averaging in the mid-five percent range.
— John Leonard, first vice president and regional manager of the Atlanta office of Marcus & Millichap Real Estate Investment Services