'It's A Fact': Overbuilding Impacting Atlanta Apartment Market
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Apartment landlords may have been feeling the thrill of some of the fastest-growing rents in the nation thanks to a robust economy, but concerns have arisen that developers have overshot the market in some parts of metro Atlanta.
“I don't think it's a concern. I think it's a fact,” TruAmerica Multifamily co-Chief Investment Officer Matt Ferrari said about overbuilding.
Since entering the Atlanta market in January, TruAmerica has acquired four apartments throughout the metro area and now has a fifth unidentified property under contract, Ferrari said. Most of its holdings are in Atlanta's suburbs, where investors have been particularly enticed by the older stock of garden-style apartments where rents can be boosted after rehabbing units.
But TruAmerica also owns a property in Midtown's hot Old Fourth Ward neighborhood, a 342-unit garden-apartment complex called The Prato in Midtown. Even though the firm's rents there are lower than the typical high-rise units and newer Class-A projects, the new supply is making all landlords in the area feel the pinch, Ferrari said. He said landlords of new projects are offering up to two months free rent on a new lease.
“I think long-term, it's tough to argue that there's a lot of jobs there and Atlanta is evolving into a more urban city,” Ferrari said. “It's hard to argue people won't want to live there, it's just how much pain is an owner willing to deal with in the mid-term.”
Ferrari is among the industry executives on tap for Bisnow's annual Southeastern multifamily conference Sept. 10 at the Westin Buckhead where rents, market dynamics and oversupply concerns will be discussed.
“There's just a lot of deliveries that are coming online now that resulted from a lot of activity that started two years ago,” Atlantic Residential CEO Richard Aaronson said. “We're experiencing good lease-up and we're having good demand and leasing at a pace that we anticipated. But also [we're finding] that it's very competitive, we're also finding we're having to offer concessions.”
Atlantic Residential recently opened its second phase of Revel at the Ballpark, a Class-A complex just across Windy Hill Road from SunTrust Park. The firm also recently leased up Lumen at Grant Park in Atlanta. Aaronson said the firm has had to offer a free month of rent to spur leasing activity.
Developers are expected to deliver 9,800 new apartment units throughout the city by the end of next year, according to Haddow & Co.
Despite the slate of new apartments, rents in Metro Atlanta during the second quarter rose 4.7% to an average of $1,247/month, according to a RealPage report. Atlanta's rent growth among large metro areas during that period was behind only Phoenix, with an 8.1% increase, and Las Vegas, which led the nation with an 8.8% rent increase.
Demand for apartments outstripped new supply in Atlanta by nearly two-to-one. More than 4,200 units were rented while 2,700 new units delivered into the market, according to RealPage.
That has many experts saying the glut of new product will likely be a blip in the market's long-term health when factoring in projected job and population growth.
“While there are pockets where it may appear to be overbuilding, such as Midtown and Buckhead, we’re seeing reasonably quick lease-up,” Cortland Senior Managing Partner Bruce Cohen said. “In the areas where there is a strong supply of new product, we’re seeing some short-term concessions, although typically associated with landlords looking to accelerate lease-up. This may have some downward pressure on rent growth, but largely in those submarkets, and we expect that to abate as those projects under construction reach stabilization.”
Cohen said mounting labor-related construction costs and rising land values are finally taking a bite into developers' abilities to launch new projects in Metro Atlanta. That will reduce future supply and help push overall rents upward.
“Atlanta has been prone to overbuilding in the past, but we believe that the underlying strength of its economy and capital market discipline, particularly on the part of construction lenders, is keeping the market in relative equilibrium,” he said.