The Birmingham multifamily market demonstrated its evolving strength last year. Continued job growth and limited apartment inventory led to the area reporting its highest occupancy rate in 10 years (94.8 percent) and monthly effective rent advancing 1.8 percent annually to $984 by year-end.
In the early months of 2020, we did not see any slowdown in terms of deal volume. Due to rising concerns around market volatility and ongoing impacts of the COVID-19 crisis, we are faced with uncertainty in terms of how the local Birmingham area, along with the rest of the country, will perform in the year ahead. It is difficult to predict market activity, but Birmingham has demonstrated positive trends worth noting.
Catching investors’ eyes
In recent years, the area’s employment growth and strong fundamentals have piqued investor interest. Out-of-state groups are increasingly venturing into Birmingham. This trend has led local developers to emphasize merchant-builds, actively constructing and redeveloping properties to fill this competitive demand.
Caleb Frizzell
Associate Director of Investment Sales,
Berkadia
Off-market transactions have recently seen an increase in frequency as investors are able to be more aggressive on pricing, which is enhanced by this unprecedented interest rate environment. Across all asset classes, the Birmingham market has enticed investors with a variety of opportunities and potential.
Class A in high demand
Students, empty nesters, medical personnel and white-collar professionals have driven demand for ground-up Class A construction and urban redevelopments in the downtown Birmingham area. The University of Alabama at Birmingham (UAB) alone provides over 20,000 potential renters in its student body. The UAB Hospital and Education Systems, along with St. Vincent’s Health System and The Children’s Hospital of Alabama, account for a large share of the city’s employment — over 30,000 in total.
Berkadia’s Birmingham 2020 Outlook Report noted that the Birmingham area saw the largest employment gain in over a decade in 2019 alone. With employment high and downtown activity increasing, large numbers of residents placed a heavy emphasis on living downtown in the newly constructed or renovated apartments and condominiums, conveniently located near large employment nodes, shops and restaurants.
To exemplify this growth and demand, in the past five years Birmingham had roughly 2,500 Class A units delivered, and the area projects at least 2,400 more Class A units to crop-up in the next few years.
Affordable, workforce housing
In addition to the recent demand for Class A construction, there remains a sustained need for affordable and workforce housing in Birmingham. Said demand has led to the renovation and premium sale of these properties. In fact, just last year we facilitated the sale of The Park at Sunderland, a 268-unit apartment community in a heavily industrial, blue-collar location about 15 minutes northeast of Birmingham’s city center. As rents in the core Birmingham submarkets continue to grow at an accelerated pace given job growth and housing demand, affordable communities like Sunderland offer value-add investment opportunities to investors and attractive options for potential tenants.
To address the nationwide affordable housing shortage, there have been a number of rent control regulations imposed in major cities. Birmingham, like other secondary and tertiary markets, is less restricted by rent control compared to larger cities.
This lack of restriction, coupled with higher and ever-rising rents in major American cities, has afforded Birmingham the unique ability to provide a variety of local housing options for varying income levels.
COVID-19 uncertainty
While the Birmingham market experienced positive trends in 2019 — and of course, we always hope for a strong and prosperous year ahead — recent market uncertainty due to the COVID-19 crisis has meant that the outlook for 2020 for Birmingham (and the United States as a whole) is far from set-in-stone.
Ongoing market volatility will inevitably influence local and multifamily markets, as will interest rate adjustments and recent travel restrictions. Berkadia is watching impacts to the overall commercial real estate market closely to adjust our strategy on behalf of our client base. In Birmingham and throughout the country, we’ll continue to take the long view on the markets as we navigate the ever-changing COVID-19 landscape.
— By Caleb Frizzell, Associate Director of Investment Sales at Berkadia. This article originally appeared in the April 2020 issue of Southeast Real Estate Business.