Climbing Employment in Atlanta Drives Rental Demand and Multifamily Construction

The upswing in Atlanta economy continues as employers create more and more jobs, indirectly fueling the residential market.

Atlanta—The upswing in Atlanta economy continues as employers create more and more jobs, indirectly fueling the residential market. This growth is not perfectly balanced; the central core of the metro area and the northern perimeter perform better due to expanding employers and major projects such as the new Braves stadium parallel with the adherent mixed-use development. Almost 75,000 new jobs are expected to come to the area, expanding payrolls 3.1 percent.

During the past 12 months, around 5,900 rentals were delivered. This is 2,800 more than the previous four quarters, and Marcus & Millichap analysts foresee a persistent construction movement throughout the rest of the year. Completions still lag behind the pre-recession levels; the trend, however, is more than encouraging as developers will complete 7,000 apartments by the end of 2014, which translates as a 1.6 percent inventory increase.

Despite the strengthening wave of new apartments, the momentum in local economy is seemingly enough to retain and even tighten vacancy. It has dropped nearly 500 basis points metro-wide since the 2009 high, and after falling 60 basis points in 2013 the average vacancy rates will edge down a further 10 basis points to 6.9 percent this year.

While vacancy keeps dropping rents are being pushed further up; however, this does not seem to keep up with the increase in property prices. The shift resulted in cap rates compressing nearly 50 basis points in average over the last year. Experts estimate a 3.4 percent jump in average monthly rent to just under $900.

Commercial market keeps improving, compressing vacancy from post-recession high

Kicking off this year with a strong occupancy gain, the Atlanta industrial market showed the largest half-year drop in vacancy over the nation and Marcus& Millichap projects a further 120 basis point improvement to 10.2 percent. Asking rents follow with an expected 4.2 percent jump to $3.50 per square foot in 2014, following a 3.7 percent climb last year. Construction leaves the only black spot on the industrial forecast, going down 1.1 million square feet but that still means completing 3.3 million square feet of space by year-end.

The retail sector is producing similar results with vacancy tightening by 110 basis points year-over-year, pushing landlords into boosting rents to an average of $13.33 per square foot in Q1. The strong employment encouraged retailers to expand and the rising number of residential and mixed-use construction projects attracts restaurants, bars and other retailers mainly to Buckhead, Midtown and downtown Atlanta. Developers will complete approximately 1.1 million square feet of retail space and inventory stock will expand 0.5 percent by the end of the current year, according to analysts.

This year already started strong for the Atlanta office market, and the expectations that it would sustain the momentum proved to be correct. Marcus & Millichap foresees a 160 basis point vacancy drop to 16.8 percent over the next six months with average asking rents rising to the five-year record of $19.6 per square foot, marking a 2.8 percent year-over-year improvement. These of course are just projections for the remaining time of the year, but thanks to the progressions so far, Atlanta has already climbed 11 places to rank 20 on the National Office Property Index.