The apartment construction crane is becoming Atlanta’s official “bird.” The drive, perhaps frenzy, for new apartment developments has helped pull the real estate market out of its abyss and is sending ripples across the market in other areas such as retail shopping, office services and condominiums.
A number of factors are driving this tsunami. The surge in millenial and executive population growth to the “inter-perimeter” in 2007-2012 has gone on unabated during the downturn. Atlanta has clearly become the South’s mecca for migration of the young and brightest of the south’s emerging millenial population. Unlike past generations that sought employment first then were transferred by that company to a city, this workforce finds a place to live first, then they find a job.
Atlanta captivates its young work force with a vibrant mix — urban villages, edgy food and entertainment options. It offers quick access to our mountains, lakes, forests and proximity to beaches in three states.
A recent U.S. Census estimates Atlanta’s inter-perimeter population to be 787,511, with 32 percent classified as millennials, 18 to 34. It has been well chronicled nationally that this population strata delays home ownership and favors flexibility, mobility and landlord-provided upkeep.
The urban core of metro Atlanta is dominated by rental housing. The 2014 census projects 194,967 occupied rental units (57.17 percent) versus 146,035 (42.82 percent) owner-occupied housing units inside the Perimeter.
Historically, like most communities across the country, sewer availability allowing multi-family units originated within city limits and, over time, radiated outward. Atlanta’s first-generation apartments were smaller complexes, 10 to 40 units in size. In the 60’s, 70’s and 80’s, we saw an influx of larger-scale garden apartment projects. Now the new wave clearly underway is massive in scale and urban in character.
Building inside the perimeter presents a new set of economic challenges and constraints. Land is scarce. Urban markets are hot with office business, technology and housing sometimes competing for the same geography. Current apartment construction also competes with the construction of two sports stadiums, an explosion of pre-leased urban office space and a myriad of government infrastructure for a much smaller building and subcontractor pool.
Core city demand is forcing higher density for new units. Scarcity and land costs are forcing structured parking, both of which drive up hard construction costs and higher rental rates. The 21st-century apartment units are also tricked out with alluring amenities: fitness clubs, rooftop gardens, outdoor spaces, electric charging stations, technology-enhanced activity rooms, security, recycling centers and Wi-Fi access. All add to the monthly rent.
For the traditional real estate industry, the conundrum is that it’s still cheaper to buy a home in Atlanta than to rent. When combining the average home price, current-long term interest rates, potential tax savings and medium household income, Atlanta is one of the most affordable home markets in America.
The inventory of homes, while tight, provides a buyer with a variety of options and new construction is up 19 percent over last year. National builders are all in place in Atlanta now and focused on increasing inventory, but inventory will remain below normal for the rest of the decade.
The home ownership rate has pulled back since its 2007 peak but whether a newcomer buys or rents, 100 percent of the newcomers need a roof over their heads; Opportunity for both products widens every day. Expect Atlanta apartment rental rates to continue their upward march for years to come. The population migration, business growth and Atlanta’s lifestyle are too compelling a story. The inertia of this movement will accelerate.
