ATLANTA — A surge in population and job growth in the Atlanta metropolitan area over the next two decades will bode well for the multifamily sector, according to panelists at the eighth annual InterFace Multifamily Southeast.
Among the 12 largest metropolitan areas in the county, Atlanta ranked second in the rate of job growth and third in the number of jobs added, according to the Bureau of Labor Statistics (BLS). Total nonfarm employment for the Atlanta-Sandy Springs-Roswell Metropolitan Statistical Area stood at 2.75 million in September 2017, up 2.5 percent year-over-year.
In addition, the Atlanta Regional Commission forecasts the 20-county Atlanta region will add 2.5 million people and 1.5 million jobs by 2040.
Multifamily demand is reaping the benefits of this growth. The job growth multiplier for the demand for new apartments used to be a factor of 5 to 1, meaning for every five jobs created, you could take one unit of inventory out of the equation, according to Mike Kemether, vice chair of the multifamily advisory group at Cushman & Wakefield. This year and next in Atlanta, that ratio sits around 7 to 1.
“A lot of the renters are coming because of job relocations,” said Christie Hawver Jordan, vice president of business development at Bell Partners. “We’ve seen Mercedes-Benz USA come in, which still hasn’t delivered those jobs to the market yet, but those are coming.”
While development over the next few years is expected to slow down, the outlook for the sector remains strong.
“Nobody debates that in 2019, there will be a precipitous drop in deliveries. There are certain micro-locations that have half a dozen deals all delivering at the same time, so there will be some softness there,” said Kemether. “But if you look at Atlanta from a 30,000-foot level, we’re in pretty good shape on the top end.”
The panel agrees that Atlanta’s upside, in addition to adding jobs at a steady pace, is its ability to attract foreign capital. “Those two things are a big reason why Atlanta is looked to as the darling of the Southeast right now,” said Kemether.
According to Norman Radow, CEO of The RADCO Cos., investors from overseas are realizing that value-add multifamily is one of the only asset classes where you can get a good return.
Of the deals Radow has worked on this year, roughly 40 to 50 percent were domestic sponsors with international equity, the three largest being from China, Israel and Canada.
Jake Reid, senior director of multifamily investment sales at Franklin Street, emphasized this trend. “We have all different kinds of groups coming into the market now,” he said. “From New York, from South America, from different areas, that are pumping money into some of that older product.”
Kemether, Jordan, Reid and Radow were panelists at the “Atlanta Market Update” portion of the conference, held Nov. 28 at the Westin Buckhead in Atlanta. Hosted by InterFace Conference Group and Southeast Real Estate Business, the event drew more than 400 professionals in the multifamily real estate sector.
Ken Breaux, partner at Carr, Riggs & Ingram LLC, moderated the panel, which also included Jay Clark, principal of Southeast Capital Cos.
Affordability is the Name of the Game
Millennials continue to dominate the renting class, pushing affordability to the top of tenants’ wish lists.
“The average millennial makes $37,000 a year in Atlanta,” said Radow. “How can they afford $3,000 per month in rent?”
The Atlanta-based multifamily investment firm centers its business plan around value-add properties attainable to millennials and working-class individuals, particularly in Atlanta’s suburbs.
The population of Gwinnett County, a northeastern county in metro Atlanta, is expected to expand by 25,000 to 35,000 people per year for the next 13 years, according to Radow. The county is already on the cusp of 1 million residents, registering at 907,135, according to the 2016 U.S. Census estimate. The population growth is changing the demographic makeup of the county as well, giving investors and developers plenty of opportunities for affordable housing.
“The people moving in are changing the demographics of Gwinnett,” said Radow. “There are more immigrants, more workers, and they can’t afford any of these apartments. Affordable housing is going to be a good business for a long time.”
Clark of Southeast Capital Cos. agreed that affordability was the key to sustainability. “When you get to the peak of the pyramid, there are only so many people at the top who can afford those rents,” he said. “You’re going to see a lot less of those deals getting financed going forward because they don’t work.”
Instead, investors are turning their attention to value-add properties in top submarkets that can achieve increased rents at prices desirable to both landlords and renters.
“We’ve seen a huge boom in pricing of aging multifamily assets in markets like Midtown and Virginia-Highland, where we’ve had mom-and-pop owners control the properties for years, and they realize they can actually get $2 per foot in rent,” said Reid. “They will come in, shine it up and get that increased rent. And it’s still cheaper than any new construction that’s on the market.”
As the population of Atlanta soars to new heights, developers and investors can capitalize on the prominent renting class if they focus on the right deals and right locations.
“Atlanta is a great city, and 2018 will confirm and continue that trend,” said Radow. “You will see the renting nation phenomenon continue, and the apartment business is a great place to play the Atlanta story.”