Birmingham’s multifamily market closed out 2017 with an average 7 percent vacancy rate and effective rents that flirted with the $900 per unit ceiling. On the investment side, multifamily assets in the market demonstrated some notable pricing trends through year-end 2017.
The market outperformed the region and the nation in terms of value appreciation on a per unit basis. The average price per unit in Birmingham increased by more than 20 percent from fourth-quarter 2016 to fourth-quarter 2017. And, among these assets, garden-style properties stood out with a 36 percent increase in average price per unit.
One explanation for this trend is the combination of value-add upgrades to garden-style properties in the market, as well as new construction that is lifting values in the market. To that end, Birmingham’s Highway 280 Corridor makes for a great case study.
Stabilization of 280 Corridor
What was a soft submarket in 2017, the Highway 280 Corridor in Birmingham has now rapidly tightened up in the first quarter of 2018. This one corridor spans various Birmingham submarkets ranging from urban Central City and Southside to Birmingham’s southeastern suburbs of Meadowbrook and Lake Purdy. According to Alabama Traffic Data (ATD), the average annual daily traffic (AADT) count along Highway 280 can range from a low of 62,000 near the intersection of Cahaba Valley Road to a high of 110,000 near its intersection with Arlington Avenue South.
Craig Hey, Cushman & Wakefield
There are about 25 market-rate multifamily properties with nearly 1,400 units located immediately along the Highway 280 Corridor, and in the greater vicinity along the artery it balloons to more than 50 properties spanning more than 6,000 units. The vacancy rate in the greater vicinity dropped by 600 basis points since year-end 2016 when it was at 13 percent.
Kristina Garcia, Cushman & Wakefield
Renovated Assets
Assets located along this corridor have undergone significant change over the past year, thereby changing the dynamic of this area.
The Abbey at Inverness. With 801 units, The Abbey at Inverness is a large enough asset to move the needle in terms of impacting the corridor’s dynamics. The 1980s-built property on Hunt Cliff Road underwent an extensive renovation last year that included upgrading the property’s in-unit and community amenities, along with full-unit interior renovations.
The property reached its lowest point at 50 percent vacancy at the end of 2016 due to the renovations and has incrementally reabsorbed into the market over the course of last year, reaching 11 percent vacancy as of February. The property last sold in January 2015 for more than $70,000 per unit. This extensive renovation has boosted the property’s value and raised the bar for what tenants are expecting in regards to interior finishes.
Trails at Cahaba River. Merion Realty Management is renovating this 1985-built, 400-unit asset that is located north of The Abbey at Inverness along Highway 280. As a result of the renovations, the property’s effective rents grew by 9.1 percent from 2016 to 2017 compared to the 3.2 percent average for the submarket and the 1.9 percent average for the overall market, per Axiometrics.
The Point at Oak Mountain. Waypoint purchased The Point at Oak Mountain in fourth-quarter 2015 to institute a value-add program to the 1997-built property, which is currently 77 percent occupied and re-stabilizing post-renovation.
4700 Colonnade. 4700 Colonnade’s location in the Cahaba Heights submarket, south of Highway 280 and just outside the 459 loop off Colonnade Parkway, affords it a lot of visibility from being a highly trafficked area. Offering top amenities including concierge services, stainless steel appliances and granite countertops, 4700 Colonnade is achieving average asking rents in the $1.24 per square foot range and up to $1.45 for one-bedrooms. The property first delivered units in first-quarter 2016 and stabilized at 93 percent by the end of 2016.
Looking Ahead
In addition to these properties, there are still apartments under construction or that were finishing lease up along this major artery. Crowne Partners’ 255-unit Crowne at Cahaba River was finishing lease up in 2017, and Cortland Partners is developing Vesta, a 315-unit, Class A high-rise located in the Five Points South submarket that is projected to deliver in mid-2019. Assets such as these will accelerate rent growth in the market going forward.
By the end of the year, we anticipate that the average effective rent in Birmingham will be firmly planted in the $900 range while vacancy remains stable.
— By Craig Hey, Director, and Kristina Garcia, Research Manager, Cushman & Wakefield. This article originally appeared in the April issue of Southeast Real Estate Business.