Birmingham was recently ranked among the “Top 10 Emerging Downtowns in the Country” by Livability.com, and the city has also become an attractive place for national investors. The Birmingham apartment market has shown stable occupancy of 93 percent and experienced gains in effective rents, despite 540 units being delivered in 2013. Construction of new communities is ramping up as projects delivered in 2012 and 2013 such as The Hill, Tapestry Park, Village at Lakeshore Crossing and Ashby at Ross Bridge were absorbed at record-setting rental rates. Additionally, new buyers are flocking to the Birmingham multifamily market.
Improving Fundamentals
Rental rates among Birmingham properties are showing encouraging signs of growth. Between mid-year 2012 and mid-year 2013, 61 percent of Birmingham-area properties experienced average effective rent increases, and 53 percent experienced quoted rent increases. This growth is reinforced by nearly universal drops in concession usage. Only one of the eight Birmingham submarkets (East submarket) experienced increased concession usage, and only the West submarket experienced no change. Overall, the Birmingham area experienced an 11.3 percent drop in the number of properties offering concessions.
Between mid-year 2012 and mid-year 2013, six of eight submarkets in the Birmingham MSA experienced overall effective rent growth. Of these six submarkets, three were submarkets that also experienced the delivery of new properties. When new properties are excluded, these three submarkets (Homewood, Hoover/Vestavia and East) still exhibit notable rent growth of 1.9 percent, 4.2 percent and 5.3 percent, respectively. These are the strongest rent growth figures in the Birmingham area, with the notable exception of the Highway 280 submarket (2.8 percent effective rent growth).
Overall, all age cohorts experienced strong rent growth. Historically, the newer age cohorts are the strongest; the post-2000 product reported strong quoted and effective rent growths of 3.2 percent and 3.9 percent, respectively. Our data suggests that most of the rent growth in the post-2000 cohort can be attributed to new properties whose rent levels are significantly higher than their competitors. With these new properties excluded, the rent growth for the post-2000 group is negligible, suggesting that existing properties in that age group were unable to make any significant rent gains over the last year. Meanwhile, older properties have been able to raise rents and many have been undergoing extensive renovation as they seek to remain competitive in the market. The strongest cohorts were the pre-1970s and the 1980-1989 product, which experienced strong rent gains in the Homewood, Hoover/Vestavia, Cahaba Heights/Mountain Brook and Highway 280 submarkets (often greater than 5 percent growth).
Focus on In-Town Living
The Birmingham CBD is home to top regional employers including Regions Bank, BBVA Compass, University of Alabama at Birmingham Health System, Children’s Hospital of Alabama, St. Vincent’s Medical Center and Veteran’s Affairs Medical Center. It has historically offered limited options for people wanting to live downtown. Over the last five years, several buildings were converted into loft apartments, and downtown quietly became one of the best rental submarkets in the city. There are currently 2,113 total rental units in the Birmingham CBD. Several recent developments have enhanced the appeal of downtown Birmingham, including Regions Field, the $64 million Birmingham Barons Minor League baseball stadium, which opened in April 2013. The stadium set attendance records in its first year, and the excitement has sparked countless redevelopment projects for restaurant, retail, residential and mixed-use properties.
One of Birmingham’s newest developments, the Uptown Entertainment District, is a $70 million project with a host of new restaurants, a rooftop bar and a luxury 294 unit Westin Hotel. The development is adjacent to the Birmingham Jefferson Convention Complex (BJCC), which draws more than 1.2 million event-goers every year.
Full Development Pipeline
In 2013, there were 540 units delivered to the market, compared to 607 in 2012. Suburban projects are achieving average rents of $1.25 per square foot, with infill projects achieving rental rates close to $2.00 per square foot. The rapid absorption and rental rates achieved for these projects has caused lenders to open the floodgates for new construction, with a focus on in-fill developments. Currently, there are 1,627 units underway in the Birmingham market, with 1,640 units that are in various stages of pre-development. The market has experienced limited deliveries since 2008, which will help soften the impact of the new units being built. As these new projects are brought on-line, however, the market will likely experience some downward pressure on effective rental rates and occupancy.
Active Transaction Market
Birmingham has posted positive rent and occupancy growth over the past two years, which has caught the eye of national capital sources. In 2013, more than 40 percent of buyers in Birmingham were first-time buyers to the market. We anticipate this trend to continue into 2014, creating maximum pricing and a high level of volume in the transaction market. In 2013, more than 8,000 units traded for over $523 million, compared to 7,800 units for $350 million in 2012. Additionally, two high-water marks were set in 2013 with the sale of two Arlington Properties developments: Tapestry Park ($32.4 million, or $145,291 per unit) and The Hill ($22.9 million, or $187,705 per unit).
— By Bo Flurry, president, Rock Apartment Advisors. This article originally appeared in the April issue of Southeast Real Estate Business magazine.