Atlanta Multi-Family Update
Atlanta's multifamily market received some relief in starting in mid-2023, but challenging macro conditions and the overhang of new supply still present headwinds heading into the end of the year. Leasing activity continued to increase 23Q3, and Atlanta closed the quarter with the strongest positive absorption in nearly two years. The highest-end properties accounted for all positive absorption, however, and absorption in low-to-moderate income properties remained negative as inflationary pressures continue to limit household formation among this cost-constrained cohort.
Despite positive absorption, vacancy rates continued to rise in high-end properties, too, as near record levels of construction began to deliver. More than three-quarters of the 31,000 units under construction are 4 & 5 Star properties, and the new competition is putting downward pressure on rents, especially in urban submarkets such as Midtown. Rents are down -3.1% across the market with steeper declines of nearly -6% in Buckhead and West Midtown. The resumption of student loan repayment beginning in 23Q4 could add downward demand pressures among the young professionals most likely to lease in these trendy areas.
Owner/operators of Atlanta's 1&2 Star communities are still seeing slight positive gains despite recent negative absorption, as limited new supply deliveries have kept vacancies relatively low.
Multifamily investors have been active in Atlanta, which ranks among the top markets for apartment investment over the past year. Even so, total sales volume has declined significantly since rising interest rates began complicating the lending picture. Transaction activity in the first three quarters of 2023 was more than about 75% less than the same period a year prior.
The rise in interest rates and decelerating rent growth are behind the investment slowdown. Transaction cap rates have increased by about 150 basis points over the past year as investors seek stronger going-in yields while sellers remain reluctant to capitulate. Still, major institutional investors remain confident in Atlanta's long-term potential for population growth, job growth, and subsequent multifamily demand. And deals involving the newest properties continue to close, even in the highest-end submarkets that have seen negative rent growth recently.
