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Multifamily Research

Market Report Fourth Quarter 2018

Atlanta Metro Area

Film, Corporate Growth Spurs


Demand For Apartment Space Multifamily 2018 Forecast

Industrywide growth supports apartment demand. Atlanta 10,600 units Construction:


remains one of the top markets in terms of the number of jobs will be completed Deliveries slow from the 13,600
created, fueled by corporate expansions, growing manufacturing units completed in 2017. The
facilities and a burgeoning film industry. Many professionals are largest project contains 560
opting for apartments in popular locales like Buckhead and apartments in the Alpharetta/
Midtown as increased debt, high home prices and a desire to Cumming submarket.
live close to an urban setting deter them from homeownership.
Strong job growth in construction, trade and leisure continues 80 basis point Vacancy:
to support apartment demand in many outlying suburbs where The net absorption of more than
decrease in vacancy
vacancy rates can reach below 4 percent. Here, rents notably 14,000 rentals will slash vacancy
lower than within the perimeter can be found. Many owners are 80 basis points in 2017 to 5.2
also capitalizing on the growing film industry, offering shorter-term percent. In the prior year, the rate
leases for workers who temporarily stay for filming. These trends ticked up 20 basis points.
have supported considerable tightening in vacancy over the past
12 months and generated healthy rent growth. 6.5% increase Rents:
in effective rents The average effective rent rises
Apartment construction begins to moderate. Completions in 2018 to $1,207 per month.
are slowing after reaching a peak in 2017. Deliveries remain Last year, an advance of 5.3
widespread, with many submarkets receiving multiple complexes. percent occurred.
The decline in completions will allow for further vacancy
improvement this year as space begins to lease. Many older
buildings are also being renovated metrowide, allowing owners
to increase marketable rents.

Investment Trends
Local Apartment Yield Trends • The Downtown/Midtown areas garnered increased buyer
attention during the 12 months ending in September, elevating
Apartment Cap Rate 10-Year Treasury Rate
property values roughly 18 percent. Cap rates in the area average
in the high-5 percent band, slightly below the metro average
12%
of 6.2 percent. Several high-rise and midrise complexes are
9% underway in both locations, potentially providing opportunities
at the top end of the market moving forward.
Rate

6%
• Lower entry costs and cap rates roughly 100 basis points
3% above the metro average are luring buyers to southwestern
suburbs. Most of the complexes changing hands here were
0% Class C assets built before the 1980s. Out-of-state buyers
18* 00 02 04 06 08 10 12 14 16 18*
were particularly active in the area, many attracted to first-year
returns higher than their home markets.

Sales Trends • Many buyers in the $1 million to $10 million price tranche have
Sales Price Growth
been priced out of popular locales and are expanding their
acquisition criteria to suburbs outside the perimeter.
rice per Unit (000s)

* Cap rate trailing 12-month


$112 average through 3Q; Treasury rate as of Sept.
32% 28
Sources: CoStar Group, Inc.; Real Capital Analytics
Year-over-Year G

$84 24%

$56 16%
Atlanta
3Q18 – 12-MONTH PERIOD
Employment Trends EMPLOYMENT:
Local Apartment Yield Trends

6.0%
Metro United States 2.1%
Apartment Cap Rate 10-Year Treasury Rate
increase in total employment Y-O-Y
Year-over-Year Change

12%
• Roughly57,100 positions were added during 12-month
4.5% period ending in September, after 49,100 jobs were creat-
9%
ed during the prior year. The unemployment rate remains
3.0%
below 4.0 percent, potentially restraining hiring.

Rate
6%
1.5% • Trade sectors led job gains with the creation of 16,700
3%
positions. The education and health services sector fol-
0% lowed with the addition of 13,300 employees.
0%
14 15 16 17 18* 00 02 04 06 08 10 12 14 16 18*

Completions and Absorption CONSTRUCTION:


Sales Trends
Completions Absorption 10,000
Salesunits completed
Price Growth
Y-O-Y

Average Price per Unit (000s)


$112 32%
16 • Completions declined moderately since last October after

Year-over-Year Growth
13,600 apartments were delivered the24%
$84 previous year.
Units (000s)

12
• $56
More than 18,900 market-rate units 16%
are underway
8 metrowide with delivery dates scheduled through 2021.
Midtown and Buckhead combined will
$28 8%receive 5,800 of
4
these rentals.
0 $0 0%
14 15 16 17 18* 14 15 16 17 18*

Vacancy Rate Trends VACANCY:

8%
Metro United States 70 basis point decrease in vacancy Y-O-Y

7%
• After a 10-basis-point increase the prior year, vacancy fell
Vacancy Rate

70 basis points during the past 12 months to 4.8 percent


6% in the third quarter.
• Increasing demand in outlying suburbs is holding vacancy
5%
tight. In Roswell, vacancy plummeted 140 basis points to
4.2 percent during the past four quarters. Low vacancy
4%
supported rent growth of 3.7 percent in the area.
14 15 16 17 18*

Rent Trends RENTS:


Monthly Rent Y-O-Y Rent Change 6.0% increase in effective rents Y-O-Y
$1,400 12% • Rent growth is accelerating from the 5.3 percent increase
Year-over-Year Change
Monthly Effective Rent

recorded in the prior year as the average effective rent


$1,150 9% neared $1,200 per month in September.
$900 6% • Above-metro-average rent growth was recorded in
Vinings, accelerating 7.6 percent during the past 12
$650 3% months to $1,394 per month. Vacancy in the submarket
fell 90 basis points during this time to 5.3 percent.
$400 0%
14 15 16 17 18*

* Forecast
Multifamily Research | Market Report

DEMOGRAPHIC HIGHLIGHTS

3Q18 MEDIAN HOUSEHOLD INCOME 3Q18 AFFORDABILITY GAP MULTIFAMILY (5+ Units) PERMITS

Metro $65,398 Renting is $242 Per Month Lower 11,806 1H 2018


U.S. Median $61,789 Average Effective Rent vs. Mortgage Payment* g 2% Compared with 1H
2014-2017

3Q18 MEDIAN HOME PRICE FIVE-YEAR HOUSEHOLD GROWTH** SINGLE-FAMILY PERMITS

Metro $218,432 245,000 or 2.3% Annual Growth 26,630 1H 2018


Compared with 1H
U.S. Median $260,016 U.S. 1.2% Annual Growth g 27% 2014-2017

*Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 90% LTV, taxes, insurance and PMI. **2017-2022 Annualized Rate

Lowest Vacancy Rates 3Q18 Class B Properties Command Elevated Pricing;


Institutional Buyers Remain Active
Y-O-Y
Submarket Employment
Vacancy
Basis PointTrends
Effective Y-O-Y % Local listings
• Fewer available Apartment Yield
slowed Trends velocity 10
transaction
Rate Rents Change
Change
Metro United States percentApartment
during the
Cappast
Rate 12 months,
10-Yearthough
Treasuryincreased
Rate
6.0% competition for properties lifted the average price 9.1
Year-over-Year Change

percent
12% to $107,200 per unit.
Far West Atlanta Suburbs
4.5% 3.0% -110 $959 2.9%
SUBMARKET TRENDS

• Elevated
9% demand for Class B assets boosted average
Johns Creek/Suwanee/
3.0% 3.4% -140 $1,325 0.8% prices by 21 percent during the prior four quarters to
Rate
SALES TRENDS

Buford
$115,000
6% per rental. These buildings changed hands
1.5% with returns in the high-5 percent area.
Northeast Cobb/Woodstock 3.6% -20 $1,230 5.0% 3%
0%
Outlook: Strong property performance continues to
Far East Atlanta Suburbs 3.6% 50 $984 7.2% attract institutional
0% and larger buyers as properties in the
14 15 16 17 18* 00 02 04 06 08 10 12 14 16 18*
$20 million-plus range are highly targeted.
Henry County 3.9% -50 $1,054 4.6%

Northeast Gwinnett CountyCompletions


3.9% and
-60 Absorption
$1,150 8.0% Sales Trends
Completions Absorption Sales Price Growth
Kennesaw/Acworth 4.0% -20 $1,208 4.3%
Average Price per Unit (000s)

$112 32%
16
Year-over-Year Growth

Decatur 4.1% 50 $1,389 12.4%


$84 24%
Units (000s)

12
Far South Atlanta Suburbs 4.1% -70 $1,095 6.8%
$56 16%
8
Far North Atlanta Suburbs 4.1% 0 $1,030 7.2%
4 $28 8%
Overall Metro 4.8% -70 $1,191 6.0%
0 $0 0%
14 15 16 17 18* 14 15 16 17 18*

* Trailing 12 months through 3Q18


Vacancy Rate Trends Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics

Metro United States


8%

7%
e
Multifamily Research | Market Report

3Q18 Apartment Acquisitions By DAVID G. SHILLINGTON, President,


By Buyer Type Marcus & Millichap Capital Corporation
Other, 1% Cross-Border, 9%
• Fed pushes overnight lending rate higher, cites economic
strength in case for additional increases. The Federal Reserve
increased the federal funds rate by 25 basis points in late September,
Equity Fund
& Institutions, 23% lifting the Fed funds rate to 2 percent. Remarks from the Fed highlight
a robust economy, spurred by accommodative fiscal stimulus,
while inflation remains broadly in line with expectations. Provided
Private, 63%
Listed/REITs, 4% the economy continues to perform as expected, the Fed is likely to
increase rates in December, as well as up to three times next year.
• Benchmark interest rates, lending costs push higher post-

CAPITAL MARKETS
Fed meeting. After the Federal Reserve lifted overnight rates and
Apartment Mortgage Originations maintained a positive economic outlook, long-term interest rates have
By Lender
pushed higher. The 10-Year Treasury yield has quickly traded toward
100% the 3.25 percent range, which is prompting lenders to pass on the
Percent of Dollar Volume

increased cost to borrowers. However, fierce competition for loans is


75% Gov't Agency also leading to some cost absorption among lenders. While greater
Financial/Insurance
Reg'l/Local Bank borrowing costs may prompt buyers to seek higher cap rates, strong
50%
Nat'l Bank/Int'l Bank economic performance should enable rent growth above inflation. As
CMBS a result, sellers remain committed to higher asking prices, which is
25% Pvt/Other
widening an expectation gap as property performance and demand
0%
trends remain positive.
14 15 16 17 18* • The capital markets environment continues to be highly
competitive. Government agencies remain the largest source of
* Through 2Q funds, commanding slightly over 50 percent market share. National
Include sales $2.5 million and greater
Sources: CoStar Group, Inc.; Real Capital Analytics and regional banks control approximately a quarter of the market.
Pricing resides in the high-4 percent realm with maximum leverage of
75 percent. Portfolio lenders will typically require loan-to-value ratios
National Multi Housing Group closer to 70 percent with interest rates in the low-5 percent range.
The passage of tax reform and rising fiscal stimulus will keep the U.S.
Visit www.MarcusMillichap.com/Multifamily
economy growing, underpinning strong rental demand and supporting
John Sebree a national apartment vacancy rate of 4.6 percent at the end of 2018.
First Vice President, National Director | National Multi Housing Group
Tel: (312) 327-5417
john.sebree@marcusmillichap.com

Prepared and edited by Atlanta Office: Columbus Office:


Catherine Zelkowski
Research Analyst | Research Services Michael Fasano First Vice President/Regional Manager Michael Glass First Vice Presid
1100 Abernathy Road N.E., Bldg. 500, Suite 600 5005 Rockside Road, Suite 1100
For information on national apartment trends, contact: Atlanta, GA 30328 Independence, OH 44131
(678) 808-2700 | michael.fasano@marcusmillichap.com (216) 264-2000 | michael.glass@ma
John Chang
Senior Vice President, National Director | Research Services
Tel: (602) 707-9700
john.chang@marcusmillichap.com Austin Office:
Dallas Office:
Craig Swanson Vice President/Regional Manager
Price: $250 9600 North Mopac Expressway, Suite 300 Tim Speck First Vice President/D
Austin, TX 78759 5001 Spring Valley Road, Suite 100
© Marcus & Millichap 2018 | www.MarcusMillichap.com (512) 338-7800 | craig.swanson@marcusmillichap.com Dallas, TX 75244
(972) 755-5200 | tim.speck@marcu
Baltimore Office:
Fort Worth Office:
Matthew Drane Regional Manager
The information contained in this report was obtained from sources deemed to be100 E. Pratt
reliable. St.,effort
Every Suitewas
2114made to obtain accurate and completeKyle Palmer
information; however, no
Vice President/Reg
representation, warranty or guarantee, express or implied, may be made as to the Baltimore,
accuracyMD 21202 of the information contained herein. Note:
or reliability 300Metro-level employment
Throckmorton Street, Suite 150
growth is calculated based on the last month of the quarter/year. Sales data includesTel:transactions valued
(202) 536-3700 at $1,000,000 and greater unless otherwise noted. This is not intend-
| matthew.drane@marcusmillichap.com (817) 932-6100 | kyle.palmer@marc
ed to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered
as investment advice. Boston Office:
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; National
Denver Office:
Association of Realtors; Moody’s Analytics; Real Capital
Analytics; RealPage, Inc.; TWR/Dodge Pipeline; U.S. Census Bureau
Tim Thompson Regional Manager
100 High Street, Suite 1025 Skyler Cooper Regional Manag
Boston, MA 02110 1225 17th Street, Suite 1800
(617) 896-7200 | tim.thompson@marcusmillichap.com Denver, CO 80202
(303) 328-2000 | skyler.cooper@ma
Charleston Office: