Atlanta Outpaces National Apartment Rent Growth, But It's Approaching Its Ceiling
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Atlanta apartment landlords celebrated the fourth-biggest rent growth rate among major metro areas in the nation last year, but it was a party not everyone was invited to.
Multifamily rents in Atlanta rose 4.8% in 2018, surpassed only by Orlando at 5% and Phoenix and Las Vegas, both at 7.4%, according to a study conducted by RealPage. Across the country, rent growth rose 3.3%, surpassing 2017's 2.5% rate, as developers unleashed 287,000 new units in the major metro markets of the U.S.
But in Atlanta, this performance belies an dichotomy. Through the third quarter of 2018, same-store urban apartment rent growth was negligible at 0.9%, Haddow & Co. Vice President Ladson Haddow said. Haddow is an Atlanta-based multifamily research and consulting firm whose studies focus on the apartment markets within the Interstate 285 ring.
While rent growth through the third quarter overall was 4.3%, much of that was pushed up by rising construction costs necessitating developers seek higher rents. Plus, there was a flight to affordability as mid-rise apartments outperformed high-rise apartment towers, Haddow said.
“I think it's a ceiling as to how much rents can rise. I think the top of the market is topped out,” he said. “You're not seeing high-rise rents rise at a good clip.”
RealPage Chief Economist Greg Willett said Atlanta's urban core did see a bump in rents, just over 2% for both Buckhead and Midtown, the mainstay trophy apartment markets in Metro Atlanta. That was up from zero growth the year before.
That said, Willett credited a drop in new apartment deliveries in 2018 for that rise, helping push occupancy up from 93.9% to 94.7% by the end of the year.
“With demand coming in well ahead of the completion volume ... that helped to encourage some rent growth,” he said.
The strength of the 4.8% rent increase can be misleading: It was achieved mainly on the shoulders of Class-B and Class-C apartments, mainly in the suburbs, where landlords pumped capital into renovations and pushed up base rents, AMLI Residential President Philip Tague said.
“Most renovated properties are generating 10-15% increases in rent. So, the 4.8% is misleading because part of that increase has been due to an exceptionally high amount of new investment in renovating existing properties,” Tague wrote in an email. “There is always some amount of renovation going on in a market like Atlanta, but 2017-18 was a spike.”
“How many people can afford $2K rents?” Radow said.
According to RealPage, average rents in Buckhead and Midtown, two of Atlanta's priciest apartment markets, averaged $1,670 and $1,820/month. That dynamic is allowing RADCO and other suburban landlords to push up rents, especially as new construction outside of the city is occurring in drips.
“There are so many people coming here and a finite amount of places to rent,” he said.
That is a phenomenon seen not just in Atlanta, Willett said.
“Vacant units available to lease can be very difficult to find in properties in the middle-to-lower end of the pricing spectrum,” Willett wrote in the report. "Few renters are moving around within the nation’s more moderately priced apartment stock, in part just because there are so few housing options available for all but the most affluent renters."
For RADCO, rent growth on its nationwide portfolio was about 9%. But offsetting slow growth in markets like Oklahoma and Texas, that value-add rent growth in Atlanta surpassed 10%, Radow said.
The next test on the durability of apartment rents comes this year as developers release another 5,200 new units in metro Atlanta, according to Haddow & Co.
“We are generally very bullish on Atlanta in 2019, but I wouldn't want to be the guy delivering [new apartments] this summer,” Radow said.
That echoes a sentiment across the nation as well. RealPage expects at least 300,000 new units to deliver across the country's major metro areas in 2019, with big chunks of new apartment units hitting Dallas, Los Angeles, Washington, D.C., Seattle and Atlanta.
“With so much high-end, new product finishing in the near term, there will be a scramble to attract resident prospects in the luxury apartment niche,” Willett wrote.