Atlanta Multi-Family Summary
Demand has returned to Atlanta's multifamily market, but after a record wave of new supply, multifamily properties are contending with elevated vacancy and declining rents.
The area has had five quarters of positive absorption after flat to negative demand in 2022. The highest-end properties accounted for all positive absorption; demand for low- to moderate-income properties remained negative as inflationary pressures continued to limit household formation among this cost-constrained cohort. Despite positive absorption, vacancy rates continued to rise in high-end properties, too, as an onslaught of construction began to deliver. Multifamily vacancy in Atlanta has risen rapidly in the past few years, soaring from 5.5% in 21Q3 to the current rate of 12.1%. This shift has also softened area rent; Atlanta multifamily asking rents are down by -2.5% year over year.
More than three-quarters of the nearly 30,000 units under construction are 4 & 5 Star properties, and the new competition is putting downward pressure on rents, especially in urban submarkets. Rents are down across the region, with steep declines of around 5% in Buckhead and West Midtown. The resumption of student loan repayment beginning at the end of last year could add downward demand pressures among the young professionals most likely to lease in these trendy areas.
With limited new supply delivered, owner/operators of Atlanta's 1 & 2 Star communities are still seeing slight positive gains in rent growth despite recent negative absorption. But they are concerned with the area's backlog of evictions, especially in Fulton County, where cases were averaging over 10 months to complete. New rules regarding evictions were passed at the end of February 2024 that should alleviate the issue moving forward.
Looking ahead, the Atlanta market's overall vacancy will likely remain above the 10-year average for the next several years as the number of new units delivered tapers off and the buildings lease up. Renter demand is expected to be in line with new deliveries by mid-2024 after new units outpaced net absorption for the last several years. Year-over-year rent growth is expected to return to positive territory by the end of this year.
Multifamily investors have been active in Atlanta, which ranks among the top markets for apartment deals over the past year. Even so, total sales volume has declined significantly since rising interest rates began complicating the lending picture.
Elevated interest rates and decelerating rent growth are behind the investment slowdown. Transaction cap rates have increased over the past year as investors seek stronger going-in yields while sellers remain reluctant to capitulate. Still, buyers, especially private out-of-state investors, remain confident in Atlanta's long-term potential for population growth, job growth, and subsequent multifamily demand. Deals involving the newest properties continue to close, even in the highest-end submarkets that have seen negative rent growth recently.
