Birmingham’s Multifamily Market Is Healthy Despite Softening, Outlook Is Favorable

by John Nelson

By David Wilson of Berkadia

Birmingham’s apartment market has softened, which is consistent with trends both nationally and regionally in other Southeastern metros. But the market remains healthy and balanced despite a bump in new construction. With total employment gains exceeding 18,000 in 2023, a substantial jump from the 5,500-person gain in 2022, and unemployment rate falling to 2.2 percent, the Birmingham economy is as strong as it’s been in over 10 years, and the economic outlook is very favorable. 

David Wilson, Berkadia

The majority of population growth has been in the southern areas such as Shelby County, although a steady delivery of new Class A apartments in downtown Birmingham in recent years, and the opening of a Publix grocery in 2017 on the ground level of the 436-unit 20 Midtown development, is helping the city core to grow.

Research by Berkadia Birmingham reveals 12 properties comprising 2,936 units are under construction in the Birmingham area, excluding Tuscaloosa. These properties reflect a cross-section of product types such as a purpose-built student property and an affordable Low-Income Housing Tax Credit (LIHTC) property. Four are in their initial site work phase, while another four are beginning preleasing.

New developments

In the thriving Highway 280 submarket, The Whitby, a distinctive 321-unit, Class A property, and The Cottages at Greystone, a 189-unit horizontal build-to-rent (BTR) property by Capstone Communities, are nearing completion. Capstone, a well-regarded Birmingham-based company, is known for its high-quality BTR products with architecture by Nequette Architecture & Design. 

The Lakeview and Southside areas are also witnessing new developments, including the nearly finished 120-unit Artisan Flats and ongoing construction of The Tracks, a 273-unit property. 

Southtown Flats Apartments is emerging on the site of a former public housing authority property, cleared in 2023 for a mixed-use project. Recently completed properties like The Canopy in Pelham and the Inkwell on Grandview along Highway 280 are in their initial lease-up phase, with strong reported demand.

Supply and demand 

With 1,551 units delivered in 2023 per RealPage and absorption of only 888 units, the market’s overall occupancy rate has declined and concessions have increased, particularly in recent months over the slow leasing periods of fall and winter. Similar to other markets, RealPage indicated occupancy rates in Birmingham had already been on a declining trend averaging 92 percent in January 2024, down from a peak of 95.9 percent in 2021. 

CoStar Group data indicates a slightly lower average occupancy of 89 percent overall, with newer products averaging near 85 percent (influenced by lease-up properties) and Class B and C products averaging closer to 90 percent. 

RealPage reports that concessions rose from a low of $29 per month in 2020 to an average near $50 per month in 2023, but concessions now average over $100 per month. With the lower occupancy rates and rising concessions, effective rental rates have softened, a theme very consistent with other metros across the country. RealPage data indicates that while average rents have continued to climb in 2023, the rate of annual growth has moderated, averaging 0.8 percent as of fourth-quarter 2023 — a decline from 3 percent two quarters previously and 10 percent in 2022. CoStar data also indicates rent growth flattening. 

On a positive note, RealPage forecasts that demand will outpace supply in 2024 and 2025 and forecasts rent growth rebounding to 2.5 percent in 2024 and 3.2 percent in 2025 as occupancy climbs back above 94 percent.

Consistent with national and regional trends, transaction activity in Birmingham has been slow with a recent notable sale of The Moretti, a 135-unit, Class A property in Homewood that was built in 2014. The property sold in September 2023 for $269,630 per unit (or $269 per square foot). The buyer assumed the existing loan sporting a 3.07 percent interest rate and market rents averaged $1,900 per month. The 200-unit Trails of Alabaster, a Class B property built in 1976 and 1989, closed in January 2024 at a sales price of $108,750 per unit. 


While Birmingham’s apartment fundamentals have softened, these moderating trends are consistent with those being experienced in other peer markets. The local economy is in a healthy growth mode and the pace and diversity of new supply is reasonable given the growth, helping provide a favorable outlook for the year ahead. 

David Wilson, MAI is a senior director with Berkadia Real Estate Advisors and oversees its Alabama Investment Sales brokerage platform. This article was originally published in the March 2024 issue of Southeast Real Estate Business.

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