High-Rise Apartment Rents Falter While Older Properties Flourish
Developers of gleaming new apartment towers in Atlanta are having a dickens of a time raising rents. In fact, they have lost ground, according to the latest report from the city's top multifamily research firm.
Same-store rents dropped 4.8% to some $2.30/SF at high-rise apartment developments within the Perimeter ring as developers saw a slowdown in the number of units leased by consumers, according to the first-quarter Haddow & Co. multifamily market report.
Average Class-A apartment rents in Metro Atlanta were $1,747/month, or $1.88/SF as of 2018, with occupancy at just over 95%. But rents varied depending on submarket, with Midtown and Brookwood commanding the highest rents in all of Atlanta at more than $2/SF and nearly $2K/month. Haddow & Co. only tracks apartments within the Interstate 285 ring.
Haddow & Co. considers any apartment project eight stories or more as high-rise. Some recent entrants to that category in Atlanta include Piedmont House, Icon Midtown, Modera Midtown and AMLI Arts Center.
“Communities in lease-up are renting an average of 15.1 units per month, down from 20.1 units per month a year ago, which is evidence of softening market conditions,” Haddow & Co. officials said in the report.
Fundamentals could be poised to only worsen in the coming year as a supply of more than 8,000 new units is slated to hit the market, outstripping aggregate demand overall, Haddow & Co. Vice President Ladson Haddow said.
“There's a lot more units out there for people to choose from than there was a couple of years ago, especially the high-rise product,” Haddow said. “It's not all doom and gloom because the market is strong, [but] there's a whole other wave coming. We're going to deliver more units in the next 12 months than we have, to date, of any 12-month period before.”
Haddow also said developers are looking farther outside the city's core for new developments, places where land is cheaper and competition is less fierce. Two recent projects underway include Mill Creek Residential's Modera Vinings, a 269-unit project off Cumberland Boulevard in the Cumberland/Galleria submarket and Cortland Partners Cortland Decatur East, a 378-unit apartment project connected to MARTA's Avondale Station.
But all is not equal in Atlanta's apartment market. Mid-rise Class-A projects showed modest gains in rent at 2.1%, Haddow said. And pre-2012 apartment complexes have actually shown positive rent growth as well, as they are better-positioned (read: cheaper) to compete against the newest — and most expensive — product.
“My rents are soaring because my average rent's under $1K [per month]. No one's building anything that can compete with my rents,” RADCO Cos. CEO Norman Radow said. “It's not an issue about rent exhaustion. It's a supply issue. In two years, it will all stabilize, if they can keep the supply from growing any further.”
Radow told Curbed Atlanta recently that many renters are flocking to suburban apartments in a search for value as well.
“In-town rents have soared over the last four years and, as construction costs rise, new mid- and high-rise projects must command even higher rents,” Radow said. “On top of that, most millennials grew up in the suburbs, and they are comfortable there. As they age, develop relationships and marry, the suburbs become a more attractive option.”