Southeast Real Estate Business recently caught up with John McCrary, director of investment sales in Berkadia’s Birmingham office, to discuss trends in the local apartment market. McCrary, who specializes in investment sales in Alabama, east Tennessee and southern Mississippi, says that Birmingham’s occupancy will likely take a hit as new deliveries hit the market in the first half of the year, but there’s optimism that renters will be able to absorb those availabilities in short order.
“With approximately 800 units expected to be delivered at the beginning of 2025, vacancy rates are likely to rise throughout the year,” says McCrary. “However, the slowdown in construction starts should help absorb existing units and eventually reduce the elevated vacancy rate.”
The following is an edited interview:
Southeast Real Estate Business: What major local or macro-economic trends are affecting the multifamily market in Birmingham?
John McCrary: The interest rate environment is a key factor influencing multifamily dispositions, both in the Southeast and nationwide. Fluctuations in interest rates impact borrowing costs for developers and investors, thereby affecting the supply and demand for multifamily properties. Over the past year, Birmingham has seen strong multifamily demand, but it hasn’t kept pace with the influx of new units, leading to high vacancy rates and increased concessions to attract tenants.
SREB: Are there any major multifamily projects under construction or recently completed in Birmingham that are worthy of note?
McCrary: Multifamily construction activity in Birmingham remains high, with net deliveries totaling 850 units over the past year, surpassing the 10-year annual average of 790 units. Although construction activity is still strong, it is showing signs of slowing, which is encouraging for owners aiming to increase rents. The construction pipeline has decreased from last year’s peak of over 3,000 units to 1,900 units — which is still above historical levels — and construction starts have halted, allowing demand to catch up.
Downtown Birmingham leads in units under construction, with ample vacant office and industrial spaces suitable for multifamily conversions. A historic tax credit program a decade ago spurred significant renovations, revitalizing downtown landmarks like the Pizitz Building, the Redmont Hotel and the Lyric Theatre. New green spaces and government projects, such as Birmingham Railroad Park and Birmingham New Street Station, have further spurred development. Projects like 20 Midtown Apartments, The Palmer Parkside and Cortland Vesta have leveraged these improvements, commanding some of the highest rents in Birmingham at over $2 per square foot.
SREB: What submarket is a hot spot for multifamily development, and what are the driving factors?
McCrary: We are fortunate to have a robust group of high growth, high demand submarkets throughout Birmingham. In many “over the mountain” communities (Mountain Brook, Vestavia Hills, Homewood, Hoover, etc.), planning, developing and building multifamily projects can be a challenge, thus impacting value for existing projects in those submarkets. Birmingham has a wide footprint so many smaller submarkets have seen significant rent growth in recent years.
The U.S. Route 280 corridor, particularly around State Route 119, is a development hotspot, with apartments and build-to-rent homes emerging from various companies. EBSCO Industries Inc. recently completed The Whitby at 119 and is developing the Tattersall Park site, which will include at least 307 residential units, a hotel, and retail space on 18 acres. Other submarkets, such as Hoover/Vestavia Hills and Bessemer Fairfield, also have significant apartment construction underway. Birmingham’s robust pipeline will continue to exert supply-side pressure on vacancy rates in the short term, but activity is expected to ease later in 2025, aiding occupancy.
SREB: What is the trend line with rents in the Birmingham multifamily market?
McCrary: Rent growth in Birmingham, which had been declining since early 2022, has finally seen its first increase in several years. This minimal growth kept rents flat over the last couple of quarters, but since mid-2024, rent growth has steadily risen. This is positive news for owners, as apartments in Birmingham have an average asking rent of $1,250 per month, significantly below the national average of $1,730 per month.
SREB: Assess the velocity of multifamily investment sales in the market.
McCrary: Increasing interest rates have significantly slowed investment sales in the market. Over the past 12 months, Birmingham’s multifamily sales volume reached $545 million. Although this is below the market’s annual average of $569 million, it has been gradually rising since 2023. Additionally, the market’s cap rates have begun to stabilize, with the expectation that reduced construction will help keep rates in check later in 2025.
SREB: As a follow-up, what companies are making up the buyer pool in Birmingham?
McCrary: Birmingham has a lot of factors working in its favor and the size of the city’s footprint is attractive to a variety of differing buyers, both local and national. Some active buyers include Monarch, Tynes Development, Arlington Properties and Hennsler.