With the year drawing to a close but not quite to the finish line, now makes for a good time to consider how some individual markets around the country have performed so far compared to the same portion of 2019. Most recently, the Nashville area was evaluated. Today, the Atlanta market is on the docket. As always, numbers will refer to conventional properties of at least 50 units.
Greater Atlanta Market View
Nationally, more new units have been delivered through November of this year than were delivered in the same period of 2019, and the Atlanta area has seen the same scenario. Around 13,000 new units so far in 2020 easily outpaced the roughly 8,000 new units introduced by this time last year. As has been addressed elsewhere, one of the key shifts in multifamily performance earlier in 2020 was a dramatic decrease in apartment demand. As a result, new supply has acted as a headwind to occupancy and rent growth in myriad markets around the country.
It was in the third quarter that multifamily demand roared back at the national level, but not enough to push rent growth back on track. As with the uptick in new units this year, Atlanta again mirrored the national numbers in demand as well. Through November, net absorption for the Atlanta market was a little more than 12,000 units compared to about 7,500 net absorbed units last year through November. The increased demand was a welcome development in light of the increased new construction deliveries.
Even so, average occupancy remained essentially flat at 92%. Average effective rent growth of 2.3% so far this year was respectable relative to other markets around the country but fell short of the 4.8% mark from 2019. Some of the shortfall can be explained by operators being less aggressive with asking rents.
Beyond that, another culprit was a further move toward lease concessions. Around 14% of conventional properties opened the year offering a new lease discount. At the close of November that figure was up to 26%. Not only has the availability of lease concessions increased in the Atlanta area this year, but the average discount value increased as well. The average lease concession stood at 3.9 weeks off a 12-month lease.
Price Class View
Along with a decrease in demand, another major trend to emerge in multifamily this year has been increased price sensitivity on the part of residents. The Atlanta market was not immune to this phenomenon. At first glance, Class A net absorption so far this year appears fairly strong relative to the market overall. While only accounting for 13% of conventional market units, Class A properties absorbed 3,500 net units – more units than any other price class.
However, that level of demand is down 41% from last year. Furthermore, in order to reach even that level of demand, operators had to give ground on rents to the tune of a 4.2% loss at the average. Finally, average occupancy for Class A dropped below 80% thanks to the aforementioned influx of new units this year.
Price Class B has been more of a mixed bag. Demand was up 63% compared to last year with average occupancy hovering right around the market average of 92%. As with the top of the market, it was rent growth that continued to lag. A gain of 0.7% is better than the 4% loss for Class A but remains a fair distance from the 3.3% annual growth in 2019.
In Classes C and D, the picture was quite different. Each price class suffered negative absorption in the first 11 months of 2019. This year, net absorption was around 2,300 and 3,200 units respectively. That demand led to solid average occupancy growth and each tier ended November above 94%. Unlike with the top two price tiers, Class C and D properties managed to parlay soaring demand into average rent growth. A 3.3% gain for Class C and a 3.1% gain for Class D essentially represent all positive rent growth for the Atlanta market so far this year.
The Greater Atlanta area has certainly been impacted by the disruption wrought by the COVID-19 pandemic. This impact can be seen most acutely on the rent growth front, and especially for the more expensive properties. Even so, demand is up compared to last year, average occupancy has been maintained and the market as a whole did manage to eke out some positive rent growth.
Though 2020 has not been the year industry participants have grown accustomed to from a multifamily performance perspective, Atlanta remains in a relatively strong position going forward.
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