Suburban Rentals Are Outpacing Cities Nationwide, And Atlanta Is Leading The Way
The number of renters in suburbia has grown faster since the Great Recession than in urban centers across much of the U.S., even as developers focused on gleaming new apartment towers in city centers. And Atlanta's suburbs grew fastest of them all.
From 2011 to 2015, Atlanta's suburbs gained 52,300 rental households, a 26% increase over the previous five-year period. During the same time, the urban core gained 15,100 renters, a 10% increase, according to a RentCafé report.
During that time, Atlanta saw nearly 15,000 apartment units delivered into the market, according to RentCafé. Of those, more than 12,700 units were developed inside Interstate 285, especially in Buckhead and Midtown, according to Haddow & Co. RentCafé's definition of urban includes not only Atlanta, but also Marietta, Roswell, Sandy Springs and Alpharetta. The rest of the metro area is considered suburban.
“I have to believe one of the main driving factors is the price of rent,” said Nadia Balint, the author of the RentCafé report. “The costs are lower in the suburbs.”
Renting in suburban areas is cheaper in 18 of the 20 largest U.S. metro areas, with renters saving about a month's worth of rent per year, according to the study. In Atlanta, there is an average of a $271/month delta in rents between urban and suburban rental housing. That means a suburbanite can save upward of $3,200/year, Balint said.
But affordability is just one of the reasons for the gap. Balint said garden-style apartments — most common in the suburbs — are more family-friendly and are generally in better school districts and quieter communities.
Atlanta resident Andrew Shook embodies RentCafé's findings. Shook works from home in an oversized one-bedroom apartment in the Holland Park apartments in Lawrenceville, a more than 20-mile jaunt by highway north of Midtown Atlanta. He has access to two swimming pools, community WiFi, a business center, a gym, a soccer field, three tennis courts and a dog park. He is close to restaurants and retail.
And when he needs to travel, he can simply travel 30 minutes to Hartsfield-Jackson Atlanta International Airport and hop on a plane. And he pays half the rent that similar apartments go for inside the confines of Interstate 285.
“It's fantastic for a guy like me, because I work out of my house,” he said.
Norm Radow is certainly betting on renters like Shook. The founder and CEO of Atlanta-based RADCO Cos. spent $390M last year buying up apartment projects across the U.S., mainly value-add plays in suburban areas. Radow said same-store rent growth surged 15% in 2016 over the previous year in Atlanta, where many of his firm's 25 properties are in the suburbs. And so far this year, rents are up another 14%, he said.
“Some of that is value-add, but still that's a lot of growth,” he said. “We've been living that conclusion for a long time.”
Affordability and lifestyle are appealing to potential renters. Radow said many suburban areas are getting urban-like qualities that are appealing to residents.
“I think what you're seeing happening is the development of commercial cores in the suburbs,” he said.
“Two years ago, we used to laugh about Smyrna,” Radow said. "We used to laugh and call it Sminings. And now it's considered an urban core."
Despite the data, apartment developers are making multimillion-dollar bets on new urbanization in Atlanta alone. But should developers be worried? There have been some signs of a cooling trend in the apartment stock in the city.
As of the first quarter, Haddow & Co. saw rents climb 2.4% over the same period in 2016 to an average monthly rent of $1,682. But that was mainly driven by the delivery of new apartment towers, which charge higher rents to justify the development costs. For landlords of existing apartments, they could barely budge rents at all.
This is all happening before Atlanta feels the effects of the 21,200 new units getting set to deliver over the next two years.
“If the demand is not keeping up, the prices might go down a little bit,” Balint said. “We're already seeing when we looked at last year's rent report for the entire Atlanta metro area, we already saw that many of the suburban markets were growing much faster than the City of Atlanta. Which means that prices are definitely cooling.”
But Bennet Sands, a director with Wood Partners, which is developing three projects in Atlanta, cautioned about reading too much into RentCafé's numbers. After all, Atlanta recovered late from the Great Recession, and apartment development was a trickle in 2011 and 2012. It really only surged by late 2014.
Plus, a good portion of suburban renters are actually renting single-family homes. By and large, housing stock within the city is apartments or townhouses.
“Those are families with children who are trying to get into good school districts,” said Sands, who is leading the development of The Whitley, a 22-story, 267-unit apartment tower across from Phipps Plaza. "Those are always going to be a big part of the renter base."
Sands admits that the development wave underway will add competition for landlords that could affect rental pricing in the near term. But after three or so years, that should balance out as growth in places like Midtown will absorb the supply.
“It just so happens we all build at once,” he said.