Strong Job Growth and Single-Family Woes to Boost Atlanta Apartment Sector

With foreclosures still high and employment expected to increase by 1.6 percent, Atlanta's multifamily sector is poised for substantial improvement in 2012.

Source: Marcus & Millichap

With foreclosures still high and employment expected to increase 1.6 percent, Atlanta’s multifamily sector is poised for substantial improvement in 2012. Minimal construction and increasing demand for apartment units are expected to push vacancy down 40 basis points to 7.9 percent—a high figure compared to the rest of the nation but low compared to the metro’s recessionary high of nearly 12 percent.

Marcus & Millichap’s most recent quarterly report explains that “more stringent mortgage underwriting, high down payments and stagnant incomes are discouraging many prospective homeowners from purchasing,” and that such naturally shifts demand to renting. Consequently, asking rents are expected to climb  2.9 percent this year to $871 per month, while effective rents will likely increase 4 percent to $800 per month.

According to the Atlanta Journal Constitution, the Atlanta metro area ranked No. 2 in job growth nationwide based on a study by Arizona State University; only Houston posted more employment gains between January 2011 and January 2012. However, this ranking exists concurrently with an unemployment rate of 9.2 percent, indicating that while job growth over the last year has been significant, wounds from the most recent recession still exist.

Source: Marcus & Millichap

In terms of which apartment classes will perform best in this type of climate, it is safe to say that the respective market is a mixed bag. Marcus & Millichap notes that large investors will deploy premium-asset capital that was accumulated during the recession, this resulting in large sales of new Class A properties. However, smaller investors will likely turn to stabilized Class B assets, as cap rates for well-operating properties in this tier will fall in the mid-7-percent range. Class C properties are forecast to do less well.

Clayton County, the southernmost of the five counties constituting the Atlanta Metropolitan Area, is expected to see a healthy amount of investment this year as more than 20 percent of its rentals are less than 10 years old—thus attracting investors looking for premium, up-to-date products.

While Atlanta overall is set for big gains and strong improvement in multifamily in 2012, the city still ranks in the bottom 10 in Marcus & Millichap’s National Apartment Index (NAI). This year’s rank of 37 brings it up three places from where it stood last year, but obviously, there remains considerable room for expansion.

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