Atlanta Real Estate Market Shows Promising Mid-Year Results

The upswing in the Atlanta economy continues as employers create more and more jobs, indirectly fueling the residential market. This growth is not perfectly balanced; the central core of the metro area and the Northern Perimeter are performing better due to expanding employers and major projects such as the new Braves stadium and adjacent mixed-use development. Almost 75,000 new jobs are expected in the area, expanding payrolls by 3.1 percent.

During the past 12 months, the apartment market took delivery of about 5,900 rental units. That was 2,800 more than in the previous four quarters, and Marcus & Millichap analysts foresee continued construction throughout the rest of the year. Completions still lag behind pre-recession levels, but that will change, as developers will complete 7,000 apartments by the end of 2014, resulting in a 1.6 percent inventory increase.

In the meantime, vacancies are tightening. They have dropped nearly 500 basis points metrowide since the 2009 high, and will edge down a further 10 basis points to 6.9 percent this year.

That in turn is driving rents upward, although not as quickly as prices. The shift has resulted in cap rates compressing nearly 50 basis points on average over the last year. Experts prognosticate a 3.4 percent jump in average monthly rent to just under $900.

Kicking off this year with a strong occupancy gain, the Atlanta industrial market showed the largest half-year drop in vacancy across the nation, and Marcus & Millichap projects a further 120-basis-point improvement to 10.2 percent. Asking rents are expected to jump 4.2 percent to $3.50 per square foot in 2014, following a 3.7 percent climb last year. Construction is the only black spot on the industrial forecast, dropping by 1.1 million square feet, but 3.3 million square feet of completions are anticipated by year-end.

The retail sector is producing similar results, with vacancy tightening by 110 basis points year-over-year, pushing landlords into boosting rents to an average of $13.33 per square foot in the first quarter. The strong employment encouraged retailers to expand, and the rising number of residential and mixed-use construction projects has attracted restaurants, bars and other retailers mainly to Buckhead, Midtown and downtown Atlanta. Developers will complete approximately 1.1 million square feet of retail space and inventory stock will expand by 0.5 percent by the end of the year, analysts say.

The office market started 2014 strong and continued at that pace, with Marcus & Millichap anticipating a 160 basis-point vacancy drop to 16.8 percent over the next six months, with average asking rents rising to the five-year record of $19.60 per square foot, marking a 2.8 percent year-over-year improvement. These of course are just projections for the remainder of the year, but thanks to progress so far, Atlanta has already climbed 11 places to rank 20th on the National Office Property Index.