Ongoing Population, Job Growth in Atlanta Drives Multifamily Demand

by John Nelson

Atlanta remains an incredibly active market for multifamily demand from both a renter and investor standpoint. The Atlanta metropolitan statistical area (MSA) boasts a population estimate by the U.S. Census Bureau of more than 6.1 million people, an increase of 14.3 percent over the past 10 years, and ranks consistently as one of the top recipients of in-migration in the country. The continued influx of new residents and rising home pricing have led to a vacancy rate of 4.9 percent, the lowest recorded in the MSA since 2000.

Travis Presnell of Cushman & Wakefield

In the third quarter, rents reached the highest average in Atlanta’s history of $1,561 per unit, an increase of 21.3 percent year-over-year. While on average apartment communities tend to see an average occupancy rate around 95 percent, eviction moratoriums have pushed occupancies at many to as high as 99 percent leased as property managers seek to make up for lost revenue.

Residents are flocking toward urban infill projects in walkable parts of the city, such as in the micro-market along the Atlanta BeltLine Eastside Trail where effective rents reached $2,052 per unit, commanding a 31.5 percent premium over the metro Atlanta average. However, there has also been substantial rent growth recorded in the suburbs where new construction is difficult due to zoning.

Alex Brown of Cushman & Wakefield

Construction deliveries slowed in the third quarter as skilled labor supply and construction material shortages were felt in earnest. However, the construction pipeline remains at a 20-year high with 19,572 units under construction, which should begin to deliver in 2022 and add much-needed additional inventory to the market by the end of 2023.

Until a significant amount of new product can be delivered, rents will continue to climb. South Atlanta has become a major target for new multifamily development as red-hot industrial growth is fueling apartment demand. Developers are able to easily find large land sites, but most municipalities are becoming more stringent when allowing rezoning to multifamily.

The boom in demand is also being felt in the investment space where cap rates continue to compress consistently every quarter. In fact, demand is so strong that cap rates on some suburban value-add deals are trending below 3 percent.

Demand has been high across all multifamily asset types, but the Class B space has been especially active as of recent. A year ago, a buyer could purchase a brand-new suburban property in the mid-$250s per unit. Today, we are seeing 20-year-old value-add product approaching those numbers.

With increasing rents and consistent lease turnover, apartments offer a better inflation hedge than some other types of commercial real estate, so buyers are interested in diversifying their portfolios with this asset class. While there were not many deals in the market during the summer, there has been an influx of product this fall as companies race to close deals by the end of the year.

Buyers and sellers are keeping an eye on tax structures, which could potentially change in 2022 so any deal that can close in the fourth quarter certainly will. While a slight pause may occur in the first quarter of 2022 while tax structures are being debated, Atlanta will continue to appeal to investors.

As metro Atlanta continues to attract major employers, the increase in population growth is only expected to continue, and until the market can deliver significant product, rental rates are likely to increase. Investor interest throughout Atlanta and the broader Sun Belt should remain steady as market fundamentals remain positive.

— By Travis Presnell, Senior Director and Alex Brown, Executive Director of Cushman & Wakefield. This article originally appeared in the October 2021 issue of Southeast Real Estate Business.

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