Atlanta Multi-Family Summary

Atlanta's multifamily market received some relief in 23Q2, but challenging macro conditions and the overhang of new supply still present headwinds in the second half of 2023. Leasing activity picked up in 23Q2, 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 33,000 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 -2.9% across the market with steeper declines of -3% or deeper in Buckhead, Midtown, 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 (roughly equivalent to Class C) are still seeing positive gains despite recent negative absorption, as limited new supply deliveries have kept vacancies relatively low.          

Multifamily investors have been aggressively 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 half of 2023 was more than 80% less than the same period a year prior, and few additional deals have been through 23Q3. 

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.

source: Costar