New Apartment Construction Slows

Another locally based firm, Haddow & Co., notes concessions by landlords are rampant, even with an improved vacancy rate of 9.6%. The average unit rent discount currently is 14.4%, "which amounts to 1.7 months of free rent on a 12-month lease," says David Haddow, president of Haddow & Co.

Despite these concessions, Atlanta's 90.4% occupancy level is "well off full occupancy," Haddow told 150 members of the local chapter of the Appraisal Institute at its recent State of Atlanta event at Cobb Galleria Centre.

Marcus & Millichap estimates concessions are consuming about 12% of asking rents. "Incentives are expected to ease in 2005 as the employment market continues to expand, generating increased renter demand," says John M. Leonard, vice president and regional manager of the firm's local office.

The effective rent in the Atlanta/Fulton County submarket is expected to slip 1.2% by the end of this year to $887 per month. Effective rents in the Clarkston/Stone Mountain submarket should remain flat at $615 per month. The average effective rent in the Marietta submarket is rising and expected to reach $709 per month this year, up 0.5%.

Four years ago, the occupancy rate among the city's 88 complexes was 96%, says Haddow. Like many other cities, he says low interest rates have "siphoned renters into the homeowner market and job losses in 2002 and 2003 have negatively impacted the market." Haddow says "the one sweet spot is the increased creation of new households by 20-somethings, which is almost exclusively a renting crowd." He predicts "concessions will slowly erode" and infill developments "will continue to be popular" by area developers.

On the construction side, Marcus & Millichap's Leonard says the majority of units to be completed in 2004 are in communities located within the Perimeter. Over 900 units are located in the Downtown and Midtown areas. "These projects are targeting young professionals who are seeking apartment living in an urban setting," says Leonard.

Although Haddow puts the current vacancy rate at 9.6%, Leonard has it "holding steady" at 11%. "The forecast calls for a 50 basis point decline in vacancy to 11.2% by year end," Leonard says.

He also predicts the median sales price per unit of $45,000 is "likely to return to the 2003 level by year end as more sales are reported." Leonard adds, "The return of institutional investors and REITs is providing a boost to values of larger properties that typically consist of more than 150 units."

Dollar volume in this category is forecast to surpass last year's total of $694 million. The median price per unit is up 20% to $68,000. "Prices in this sector are expected to remain high in 2005 as additional institutional and REIT funds flow into the Atlanta apartment market," Leonard says.