Short-Term Problems for the Atlanta Multifamily Market


Top 10 Multifamily Markets With the Most Excess New Inventory in Comparison to 2019 (Pre-Covid Levels)

Atlanta, in particular, has a substantial surplus of rental units. According to data in the table below, the city has 19,300 units that need to be absorbed before the vacancy rate returns to pre-pandemic levels of 8.6%. This figure doesn’t even include the additional 27,553 units that are currently under construction and expected to come onto the market within the next two years.  For the current construction pipeline, 12,782 units are scheduled for delivery in the latter half of 2024, while 13,123 units are scheduled for completion in 2025.  Only 1,648 units are slated for completion in 2026.

The influx of new rental units in Atlanta is likely to intensify competition among landlords and could lead to slower rental rate increases or even rent decreases in some submarkets. As a result, renters may have more options and potentially lower rental costs in the near future.

While Atlanta’s rental market demonstrates robust demand and growth, several short-term issues are causing concern for property owners, particularly around rent stagnation amidst rising property taxes and insurance costs. These financial pressures are especially critical for owners with soon-to-mature loans or recent purchasers.

Flat Rent Growth

In the first half of 2024, the U.S. rental market saw a surge with 257,000 net new renters, marking the second-strongest start to a year in over two decades. This remarkable growth highlights that despite various challenges, the demand for apartments remains robust. Even with this booming demand, national vacancy rates are slightly elevated, and rent growth for most markets is flat. This is largely due to a significant increase in new supply. In the first six months of 2024, Atlanta added 15,853 new apartment units — the highest in any half-year period and almost three times the average from 2000 to 2019.

New Supply Hotspots

This surge in new supply hasn’t been evenly distributed across the Atlanta metro area. Certain submarkets have experienced a disproportionate amount of construction, intensifying competition and potentially contributing to rent stagnation. Notably, areas like Midtown, Buckhead, and the Central Perimeter have seen a significant influx of new apartment projects. This concentration of supply in specific areas can create challenges for owners in those submarkets as they compete to attract and retain tenants.

For example, in Midtown, a hub of construction activity, thousands of units are currently under development, with most expected to be delivered between late 2024 and mid-2025. The abundance of new inventory in this submarket could lead to increased competition among landlords, potentially putting downward pressure on rents.

Similarly, Buckhead, known for its luxury living, is seeing a significant number of new high-end apartments set to come online primarily in 2025. The influx of these luxury units may test the depth of demand in this upscale market, making it challenging for property owners to maintain occupancy and rent levels.

The Central Perimeter, another hotspot for new development, is also seeing a steady stream of new units expected throughout 2024 and early 2025. This submarket’s strong job market and connectivity are driving demand, but the sheer volume of new supply may make it difficult for property owners to achieve the rent growth they anticipated.

In West Midtown and Old Fourth Ward, areas popular among younger renters for their mix of urban living and affordability, new projects are slated for delivery in mid to late 2024. These areas, while currently in demand, may face similar challenges as other high-supply submarkets, with increased competition potentially leading to softer rent growth.

As these new developments come online, property owners in these submarkets will need to be strategic in their leasing and pricing strategies to navigate the heightened competition and maintain their market positions.

Increasing Property Taxes and Insurance Costs

  1. Rising Property Taxes: Property taxes in Atlanta have been on an upward trajectory, with significant increases over the past few years. The Fulton County Board of Assessors, for example, increased assessed values by an average of 18% in 2023. This escalation puts additional financial strain on property owners, as they must allocate more of their budgets to cover these higher taxes. The inability to pass these costs on to renters due to flat rent growth compounds the problem.
  2. Soaring Insurance Costs: Insurance premiums for multifamily properties have also risen sharply. One local property management firm reported a 35% increase in premiums for their Atlanta portfolio in 2024 alone. Factors such as increased natural disasters, higher property values, and market volatility contribute to these rising costs. Property owners are finding it difficult to offset these expenses, squeezing

Impact on Property Owners

  1. Pressure on Cash Flow: For current apartment owners, especially those with loans maturing soon, the combination of flat rents and rising expenses creates a precarious financial situation. A recent example is the “Riverbend Apartments” complex, which was forced into foreclosure in early 2024 due to an inability to refinance under the new market conditions. Adequate cash flow is essential for maintaining properties, servicing debt, and achieving investment returns. When cash flow is compromised, owners may struggle to meet these obligations.
  2. Challenges for Recent Buyers: Buyers who recently acquired properties at peak market prices are particularly vulnerable. They may have anticipated higher rent growth to justify their investment, but the reality of flat rents combined with escalating property taxes and insurance costs can lead to financial distress. These owners might face difficulties in meeting debt service requirements, potentially leading to defaults or forced sales.

Short-Term Solutions and Strategies

  1. Operational Efficiency: Property owners are increasingly focusing on improving operational efficiencies to mitigate rising costs. This includes adopting cost-saving technologies, optimizing maintenance practices, and renegotiating vendor contracts to reduce expenses.
  2. Reevaluating Insurance Coverage: Owners may need to reassess their insurance policies, exploring options for higher deductibles or coverage adjustments to lower premiums. Additionally, investing in risk mitigation measures, such as property improvements to withstand natural disasters, can potentially reduce insurance costs in the long term.
  3. Advocacy and Tax Appeals: Property owners can engage in local advocacy efforts to address rising property taxes, pushing for more equitable tax assessments and fair taxation policies. Additionally, appealing property tax assessments can sometimes result in reduced tax liabilities, providing some relief.
  4. Diversifying Revenue Streams: Exploring additional revenue streams, such as offering premium services or amenities, can help offset stagnant rent growth. Some property owners are implementing strategies like charging for pet fees, parking, or storage to generate extra income.

Looking Ahead

While Atlanta’s multifamily market is currently grappling with short-term challenges, including flat rent growth, rising property taxes, and increasing insurance costs, there are compelling reasons to remain optimistic about the future. The current phase of heightened construction activity and its associated pressures are expected to be temporary, with significant long-term benefits on the horizon.

Short-Term Challenges and Their Resolution

The high levels of new construction and associated financial pressures are indeed causing some strain on the market. However, this surge in supply is a double-edged sword. While it contributes to current rent stagnation and competitive leasing conditions, it also lays the groundwork for a more balanced market in the near future. As new inventory is absorbed and construction slows, the supply-demand equilibrium will gradually restore itself. Property owners who navigate these challenges strategically—by focusing on operational efficiency, cost management, and targeted revenue diversification—will be well-positioned to capitalize on the rebound.

Demographic Trends Favor a Stronger Market

Looking beyond the immediate concerns, Atlanta’s long-term demographic and economic trends provide a robust foundation for future growth. The city continues to attract a diverse population, driven by its strong job market, high quality of life, and growing economic opportunities. As the economy remains resilient and more people move to Atlanta, the demand for rental housing is expected to rise, eventually supporting higher rents and more favorable market conditions for property owners.

Economic and Development Drivers

Atlanta’s status as a regional economic powerhouse is a key factor in its future real estate health. Major infrastructure projects, corporate relocations, and ongoing urban development contribute to a vibrant and expanding metropolitan area. Additionally, the city’s continued growth in sectors such as technology, healthcare, and education further fuels residential demand.

Opportunities for Market Positioning

The current market conditions also present opportunities for savvy investors and property owners to enhance their market positioning. By leveraging technological advancements, improving property management practices, and investing in amenities that meet evolving tenant preferences, owners can set themselves apart and build a competitive edge. Properties that adapt to these changing dynamics and offer unique value propositions will likely see enhanced performance as the market stabilizes.

While Atlanta’s multifamily market is navigating through a period of short-term discomfort, driven by high construction levels and rising costs, the long-term outlook remains promising. The city’s strong demographic trends, economic resilience, and strategic development initiatives set the stage for a healthier market in the future. As the construction boom subsides and supply-demand dynamics rebalance, property owners who effectively manage their current challenges will find themselves well-positioned to benefit from a revitalized and thriving rental market.

Despite the robust demand for rental housing in Atlanta, the multifamily market faces short-term challenges due to flat rent growth, rising property taxes, and increasing insurance costs. Property owners, particularly those with maturing loans or recent buyers, are under significant financial pressure. By focusing on operational efficiency, reevaluating insurance coverage, engaging in advocacy, and diversifying revenue streams, owners can navigate these challenges and maintain the financial health of their properties.  Longer term demographic trends and a robust economy point to a more bright future ahead.

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Steve Triolet
Senior Vice President of Research and Market Forecasting
[email protected]
tel 214 223 4008