Atlanta Renters Regain Leverage As Vacancy Soars, New Units Keep On Coming

Developers’ thirst for new apartment construction in 2021 is bearing fruit in the tens of thousands of units hitting the market at the same time that rents have flattened.

The vacancy rate among the metro area’s more than 550,000 apartment units hit 10.5% during the third quarter, a slight increase from 10.3% in the second quarter, which was the first time vacancies rose above 10% since 2011, according to data compiled by the brokerage firm Lee & Associates.

The vacancy rate spike could increase further soon. Roughly 36,000 units are under construction in Atlanta, which would expand the region's inventory by 6.5%, Lee & Associates senior research analyst Kate Hunt wrote in the report.

The market is already shifting in favor of renters who have battled escalating rents over the past decade.

Between 2010 and 2019, average apartment rents in Atlanta rose 65%, The Atlanta Journal-Constitution previously reported. The pandemic put rent hikes into overdrive, with the median rent in the metro area jumping 16.8% between 2019 and 2021 to more than $1,400 per month, according to Apartment List data.

But the onslaught of new apartment supply is putting a dent into those growth figures. Area median rents fell 6.2% the past year and 1.5% over the past month alone to $1,471 a month, according to Apartment List.

“I wish there was a way to perfectly calibrate supply and demand, but the truth is supply is always spiky in the Sun Belt,” Portman Residential Senior Vice President Marc Brambrut said. “We’re going to see more concessions. Whatever submarket you pick, if you have four or five projects delivering at the same time, it becomes very competitive.”

Portman opened its Sora at Spring Quarter in Midtown this week, one of the newest residential towers to sprout up in what has proven to be Atlanta’s hottest submarket. Brambrut said the firm has signed 50 leases for the 370 available units at the building, where rents range from $1,800 to more than $7,600 a month, according to Apartments.com.

While Portman hasn't touched the asking rent, competition from the new supply of multifamily housing in Midtown has compelled the firm to offer new renters two months of free rent, a common incentive in the market today, Brambrut told Bisnow.

Even with those incentives, Portman is projecting a longer runway to stabilize the property — which means 95% occupied with paying rents — than it did initially, Brambrut said. In the past, that would take about 12 months. Now, Brambrut said the firm is looking to secure that in up to 15 months.

“We’re seeing great traffic,” he said. “It’s very rare to see properties not stabilize, especially in the Sun Belt. Fundamentally, Atlanta has plenty of demand.”

Much of the new supply is coming in Atlanta's suburbs, where the slowdown is happening more dramatically.

Rents inside the city declined by 3.3% year-over-year in the third quarter, according to data from Haddow & Co., which only monitors multifamily inventory within the Interstate 285 belt.

Still, roughly 7,500 new apartment units are scheduled to deliver over the next 12 months, according to Haddow data, the highest 12-month total ever recorded.

Some 4,000 more are expected to deliver in late 2024 and early 2025, while another 5,475 units are in the planning stages, according to Haddow. But the pipeline might appear bigger than how it will actually play out.

Mill Creek Residential Senior Managing Director Pat Chesser said interest rates and the lack of construction financing are wreaking havoc on projects trying to come out of the ground. Equity investors also want a higher return on their capital, and Chesser said the cost of debt, construction and land prices makes that hard for a developer to achieve for her investors.

“The product is coming. But what you’re going to see in two years is basically a quarter of the supply that you’re used to receiving,” Chesser said. “I think you’re going to have maybe one-third of the scheduled starts you thought you were going to have. And the other two-thirds are either dropped or pushed farther out in the future.”