Atlanta budget predicts development cycle to expand over next 12 months

By David Pendered

Atlanta Mayor Kasim Reed’s proposed budget for the fiscal year that begins July 1 predicts the construction cycle will expand in the upcoming 12 months. A similarly rosy outlook on development also is evident in a report released Wednesday by the Federal Reserve.

Peachtree Street construction

Consumer demand for luxury apartments is fueling a construction cycle in Atlanta that city officials expect to expand during the next year. Credit: David Pendered

Building permits are a key indicator that Atlanta city finance officials used to create the budget for Fiscal Year 2016.

The line item for building permits has increased by 16.4 percent in the FY 2016 budget, compared to current year.

Atlanta predicts revenues from building permits will rise to $21.7 million, from the current projection of $18.6 million for FY 2015.

The city’s optimistic outlook is mirrored in the beige book the Fed released Wednesday. The beige book is a collection of anecdotal information the Fed collects from business contacts around the nation. The Atlanta Fed covers Georgia and all or parts of five other southern states.

The Atlanta Fed reported that contacts in the real estate and construction industries remain generally positive.

Brokers reported home sales are slight up, compared to the same period last year. Buyer traffic is flat or slightly up. Home prices are appreciating modestly and sales activities are expected to increase during the summer.

Builders say their sector has improved. Construction activity is flat to slightly up; sales of new homes and buyer traffic was slight up; the inventory of unsold homes is down; and they are optimistic their construction will increase over the summer.

Vine City, Atlanta development

Despite Atlanta’s strong market for rental housing, some residences remain boarded up as the market hasn’t reached all neighborhoods, such as this street in Vine City. Credit: David Pendered

Commercial real estate in the Atlanta district is a bit of a mixed bag. Demand is improving, but only in select areas. Non-residential construction activity has increased since a year ago, and apartment construction persists.

Some analysts don’t see an imminent downturn in Atlanta’s apartment building binge. Their data explains the surge in luxury high rise projects in Atlanta and the related investments being made outside the city.

Here’s the view of Integra Realty Resources, a commercial real estate valuation and consulting firm with an office in Atlanta:

  • “There is strong demand for the Midtown and Buckhead locations, which has driven market rents upward of $2.00 per square foot for newer product. High-rise apartments comprise a large portion of the units under construction or recently completed. New high-rise developments have achieved strong absorption at unprecedented rent levels. Tenants in the intown markets enjoy the restaurants, nightlife, and MARTA public transportation.”
  • “Although there continues to be concerns that newly constructed and proposed developments will result in higher vacancy rates and downward pressure on market rents for Class A properties, this was not the case in 2014, as successful absorption of the new product occurred while rent levels increased.”
  • “Transaction volume continues to increase and Real Capital Analytics indicates Atlanta ranks 7th in the top apartment markets. There is a shortage of available product, particularly in the core areas of Midtown, Buckhead and Central Perimeter, resulting in increased investor demand in the suburbs.”

 

David Pendered, Managing Editor, is an Atlanta journalist with more than 30 years experience reporting on the region’s urban affairs, from Atlanta City Hall to the state Capitol. Since 2008, he has written for print and digital publications, and advised on media and governmental affairs. Previously, he spent more than 26 years with The Atlanta Journal-Constitution and won awards for his coverage of schools and urban development. David graduated from North Carolina State University and was a Western Knight Center Fellow. David was born in Pennsylvania, grew up in North Carolina and is married to a fifth-generation Atlantan.

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