By David Pendered
Rental rates for newly built apartments in Buckhead and Midtown now exceed $2.60 a square foot, and a new report from CBRE says the demand exists to fill the units. Meantime, the report observes gentrification and rising prices are concentrated east of Midtown/Downtown.
As the CBRE report states of rental rates:
- “An influx of well-paying technology jobs should enable these new deliveries [apartments] to be absorbed at an acceptable pace, in some cases assisted by short-lived, up front concessions.”
As the CBRE report states of gentrification:
- “Other Atlanta neighborhoods are experiencing significant gentrification, complete with robust luxury midrise apartment development, as the excitement of city living draws new urban residents. Old Fourth Ward/Memorial Drive east of Downtown and West Midtown are noteworthy examples. New rents in these areas typically range from $1.80-$2.30 per square foot and absorption is expected to keep pace with deliveries.”
These observations highlight the impact of public subsidies that once encouraged developers to build high-end apartments.
This high-end market is the one developers courted with inducements formerly delivered by the development authorities in Atlanta and Fulton and DeKalb counties.
For example, in the six year period ending in 2015, about 8,500 apartment units were built in Atlanta with subsidies provided by the Fulton County Development Authority. Of these, 30 units have been set aside for lower income residents, according to a report delivered in May 2016 by Dawn Luke, senior vice president of community development at Invest Atlanta, the city’s development arm.
The Atlanta City Council responded to the issue last year by closing a loophole that enabled apartment developers to use government subsidies to build luxury apartments in Atlanta without reserving any units for lower income residents, in violation of the city’s policy.
Development authorities Fulton and DeKalb counties responded by implementing similar regulations. Atlanta Public Schools now has expressed similar support in terms of the adaptive reuse of its buildings.
In areas outside the city of Atlanta, the issue of affordable housing appears to be less of a factor. The rent-to-income ratio in metro Atlanta is 25.1 percent, CBRE determined. The ratio is up to 30 percent to be considered affordable, according to the federal Department of Housing and Urban Development. CBRE reports the ratio in some cities exceeds 40 percent; the report did not identify these cities.
For reasons unrelated to the shift in housing policy, the era of multi-family construction may be passing, according CBRE’s report.
CBRE predicts the number of new apartments to be completed in metro Atlanta this year will be well below the peaks of previous cycles.
About 10,800 new apartments are to be completed in 2017, compared to a range of 14,000 to 15,000 apartments per year in previous cycles.
The rate of construction is expected to drop sharply after 2017, CBRE predicts. Reasons include rising costs for land and materials, construction moratoriums in several cities, fewer financing options, and reduced margins.
This outlook is similar to findings contained in the January edition of the Beige Book, issued by the Atlanta Federal Reserve Bank. The book contains anecdotal information about current economic conditions in the Southeast. Here’s the relevant snippet from the Jan. 18 edition:
- “Looking forward, most District commercial real estate contacts expect the pace of non-residential construction activity to increase slightly over the next quarter while many anticipate the pace of multifamily construction to continue to level off in the coming quarters.”