Atlanta remains one of the most desirable markets in the country for investors due to its diverse economy, below-national average unemployment rate, steady increase in jobs and population growth. These market fundamentals have translated to a well-performing multifamily market that, despite short-term macro challenges, is in a unique favorable position due to its relatively low supply compared to other peer Sunbelt markets.
Demand for multifamily has seen a rebound in 2024 and Atlanta has been resilient in the middle of a multi-year supply wave. Over the past two years, the market delivered approximately 35,000 units and that number is expected to drop to just 9,000 units in 2025 and less than 4,000 units in 2026. This will lead to tightening occupancies and strong rent growth. The city has already recorded its seventh consecutive quarter of net positive net absorption as of the second quarter of 2024, which is a quarterly high since mid-2021 at 5,799 units.
New development, on the other hand, has been a bit more challenging due to the higher return on cost requirements, flat rent growth and a lack of meaningful relief on construction costs. Market valuations for newly constructed assets are near current replacement cost, which has created an additional challenge for developers. Due to these factors, construction starts in 2024 are at a 15-year low.
There are, however, signs of the development market gaining momentum in recent months. Developers believe they can benefit from less competition and a stronger capital markets environment by initiating constructions starts in 2025 and delivering into 2027. Additionally, with less development activity happening today, general contractors have become more aggressive in their bidding and many developers are seeing cost reductions that make multifamily projects more viable than before.
Institutional investors are slowly returning to the market, with companies like EQR and KKR acquiring large portfolios this year. Increased investor confident has been driven by decreasing interest rates and a general belief in the return of rent growth.
Over the past 18 months sales volume has remained low, but the second quarter of 2024 represented the first period of year-over-year increase in transactions. This upward trend has continued into the third quarter and is expected to result in the most fourth quarter deals since 2022. Next year, we expect to see the beginning of a normalized transaction market.
Distressed acquisition opportunities have also been limited with only seven multifamily foreclosures in Atlanta so far in 2024. Bridge lenders and debt funds are instead opting for alternatives to avoid officially foreclosing on properties, including modifying loans, extending with existing sponsors or bringing in a new operator.
Though there seems to be more optimism from multifamily owners and operators, renter delinquency has been a challenge that is more pronounced in Atlanta than other parts of the country. On the bright side, state level legislation has been passed to improve the eviction process and help owners reach a resolution more quickly.
Atlanta has a resilient multifamily market that has experienced its challenges but is moving along on its road to recovery. Commercial real estate experts are hopeful that this will create the right conditions for more deal activity and traction in the multifamily sector over the next several years.
— By Alex Brown, executive managing director of Cushman & Wakefield. This article was originally published in the October 2024 issue of Southeast Real Estate Business.