MARKET REPORT

MULTIFAMILY
Atlanta Metro Area Q4/19
Economic Strength Producing Apartment Demand;
Construction Robust in Suburbs and City Core Multifamily 2019 Outlook

Demand spurred by economic growth and changing lifestyles. CONSTRUCTION:

Atlanta’s internationally renowned universities with large student bodies;
Deliveries in 2019 will be generously
and a variety of headquarters for both corporate and governmental agen-
higher than 2018, posting a 24 percent
cies offer opportunities for an expanding rental market. Household and
job growth continue to be above the national rate, increasing demand for 9,500 UNITS
will be completed
increase year over year. This year will be
in line with the large construction boom
apartments. Additionally, rising home prices have caused shifts in living
between 2015 and 2017.
expectations, and residences with desired amenities in popular neigh-
borhoods place homeownership out of reach for many households. As a
result, the inability to purchase a house for most in these areas is keeping
VACANCY:
more residents in the rental market longer. Meanwhile, the influx of
white-collar workers into the metro will generate more demand for highly Vacancy will decrease to 4.8 percent in
2019, the lowest annual rate observed
amenitized, luxurious units, while a need for lower monthly cost options
will keep vacancy tight and rents rising in Class B/C rentals. 50 BASIS POINT
decrease in vacancy
in the current business cycle. Last year,
vacancy declined 80 basis points.
New construction drives vacancy trends. Atlanta experienced a major
construction boom between 2015 and 2017 in response to large popula-
tion growth. The influx of apartments moved vacancy up in this period;
however, development curtailed in 2018, allowing supply to catch up with
RENT:
demand. As a result, vacancy in the third quarter of this year reached a Average effective rent will climb to $1,284
per month at year end, setting a new high.
cyclical low of 4.5 percent. The tight rate is prompting the construction
pipeline to expand with a slew of new projects completing in 2019 and 6.4% INCREASE The average rent has soared 37 percent
2020. These projects are primarily focused in Downtown Atlanta, Buck- in effective rents over the past five years.
head and Decatur, showcasing developer confidence in large buildouts
where working professionals want to live.

Investment Trends
• Investors have been most active in Westside Atlanta in search of val-
Local Apartment Yield Trends ue-add properties and higher cap rates compared with more expensive
Apartment Cap Rate 10-Year Treasury Rate regions like Buckhead. Bidding in the submarket remains intense and
cap rates posted a notable decline of 50 basis points to the mid-6 per-
12%
cent range over the trailing 12 months.

9% • Class C sales velocity in the metro trended upward over the past four
quarters. During this time the average cap rate for these assets declined
Rate

6% 30 basis points to the low-6 percent range. The average price per unit,
meanwhile, increased 20 percent to $80,000 per unit as investor bid-
3%
ding intensified for these assets.
0% • Buckhead’s deal flow quadrupled over the past year, while the average
* 01 03 05 07 09 11 13 15 17 19*
price per unit declined to $178,000 as the majority of properties trad-
ed were Class C apartments. The average price for Class A properties
in Buckhead increased 12 percent over the same period to $292,000
Sales Trends per door.
Sales Price Growth
* Cap rate trailing 12-month average through 3Q; Treasury rate as of Sept. 30
er Unit (000s)

Sources: CoStar $160

Group, Inc.; Real Capital Analytics 30%
Year-over-Y

$120 15%
 Employment Trends 3Q19Yield
Local Apartment – 12-Month
Trends Period
Metro United States Apartment Cap Rate
EMPLOYMENT
10-Year Treasury Rate
6%
12% 1.8% increase in total employment Y-O-Y
Year-over-Year Change

3%
9%
• Over the past year ended in September, the metro added 49,900
positions. While growth trended down from last year’s 2.3

Rate
0%
6% percent increase, it remains elevated compared with the national
growth rate of 1.4 percent.
-3% 3%
• The professional and business services sector posted the largest
-6% 0% gain with more than 13,500 new roles filled. Educational and
09 10 11 12 13 14 15 16 17 18 19* health
01 services
03 05 came
07 in second
09 11 13with
15 12,000
17 jobs
19* added.

Completions and Absorption Sales Trends

Completions Absorption Sales CONSTRUCTION
Price Growth

16
Average Price per Unit (000s) $160
7,600 units completed30%Y-O-Y

Year-over-Year Growth
Units (000s)

$120 15%
12 • Over the past 12 months ended in September, Atlanta received
roughly 1,200 less units than the previous year. This edges down from
$80 0%
8 an elevated five-year average of 9,500 units completed per year.

4 $40 • The Midtown Atlanta submarket remains-15% the locale of choice for
builders, receiving 1,400 units over the past four quarters, following
0 $0 1,500 apartments one year earlier. Buckhead
-30% came second with
09 10 11 12 13 14 15 16 17 18 19* 09 10 11 12 13 14 15 16 17 18 19*
1,100 new rentals.

Vacancy Rate Trends

Metro United States VACANCY
12%
30 basis point decrease in vacancy Y-O-Y
10%
Vacancy Rate

• The metro’s vacancy continues to trend down, landing at 4.5

percent in September, the lowest rate since 2000. Last year, an
8%
80-basis-point drop was registered.

6% • Third quarter vacancy for Class C properties remains the tightest

in the metro at 4.3 percent, dropping 40 basis points over the
4% past 12 months. In contrast, vacancy for Class A properties
09 10 11 12 13 14 15 16 17 18 19*
dropped 60 basis points to 4.8 percent in the same period.

Rent Trends
Monthly Rent Y-O-Y Rent Change RENT
$1,500 12%
6.0% increase in the average effective rent Y-O-Y
Year-over-Year Change
Monthly Effective Rent

$1,250 6% • The average effective rent in the metro advanced to $1,271 per month,
the highest it has been in the past two decades. Areas driving this
$1,000 0% growth are the southern and western suburbs.

$750 -6%
• Class C units in the metro have had the highest effective rent changes
over the past four quarters at 9.1 percent, rising to $925 per month.
$500 -12% Class C rents have increased 37 percent over the past five years and are
09 10 11 12 13 14 15 16 17 18 19* at a cyclical high.

* Forecast
Source: CoStar Group, Inc.
 Demographic Highlights

3Q19 Median Household Income 3Q19 Affordability Gap Multifamily (5+ Units) Permits

Metro $68,024 Renting is $69 Per Month Lower 7,414 1H 2019

U.S. Median $65,205 Average Effective Rent vs. Mortgage Payment* h 41% Compared with 1H
2016-2018

3Q19 Median Home Price Five-Year Household Growth** Single-Family Permits

Metro $227,207 188,500 or 1.7% Annual Growth 26,278 1H 2019

Compared with 1H
U.S. Median $272,227 U.S. 1.0% Annual Growth g 4% 2016-2018

*Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 90% LTV, taxes, insurance and PMI. **2019-2024 
Annualized Rate

SUBMARKET TRENDS SALES TRENDS

Sales Intensify With Higher Prices Per Unit; Cap
Lowest Vacancy Rates 3Q19**
Employment Trends Rates Edge Lower
Localin Suburban
Apartment YieldSubmarkets
Trends
Metro United States Apartment
• Transaction velocity Cap Rate
ramped 10-Year
up 17 percent overTreasury
the pastRate
12 months
Y-O-Y Average
6% Vacancy Y-O-Y %
Submarket
Rate
Basis Point Effective
Change
for multifamily properties in the metro, while the average price per
Change Rent
unit rose 812%
percent to $117,300 versus the trailing 12-month period.
Year-over-Year Change

3%
Smyrna 3.4% -160 $1,284 9.8% • As traded cap
9% rates across the metro have decreased 10 basis points re-
maining in the low-6 percent range, some outerlying areas like Smyrna
Rate

0%
Norcross 3.9% -90 $1,083 4.9% and Norcross
6% are lower toward the low-5 and mid-5 percent range.

-3% Outlook: Investors

3% will target areas like Smyrna and Lawrenceville, as
Clayton County 4.3% -30 $903 6.5%
limited new development, low vacancies and a solid working-class renter
-6% base provide 0%
attractive returns and capital appreciation.
Alpharetta/Cumming 09 104.6%
11 12 2013 14 $1,491
15 16 6.8%18
17 19* 01 03 05 07 09 11 13 15 17 19*

Virginia Highlands/
4.6% -120 $1,632 2.0%
Morningside Completions and Absorption Sales Trends
Completions Absorption Sales Price Growth
West Atlanta 4.8% -50 $1,470 5.5%
Average Price per Unit (000s)

$160 30%
16
Year-over-Year Growth

South Atlanta 5.2% -20 $926 9.6%

Units (000s)

$120 15%
12
Sandy Springs 5.5% -10 $1,390 9.4%
$80 0%
8

Buckhead 5.8% 30 $1,690 0.6%

4 $40 -15%

Midtown Atlanta 6.1% 70 $1,843 6.0%

0 $0 -30%
09 10 11 12 13 14 15 16 17 18 19* 09 10 11 12 13 14 15 16 17 18 19*
Overall Metro 4.5% -30 $1,271 6.0%
* Trailing 12 months through 3Q19
** Includes submarkets with more than 17,000 units of inventory Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
Vacancy Rate Trends
Metro United States
12%
 CAPITAL MARKETS
1H19 Apartment Acquisitions By DAVID G. SHILLINGTON, President,
By Buyer Type Marcus & Millichap Capital Corporation
Other, 1.6% Cross-Border, 7.5% • Fed cuts rate again, while balancing assortment of factors. The Federal
Reserve cut the overnight rate by 25 basis points at the end of October, the third
Equity Fund reduction in less than 100 days in an attempt to lengthen the economic runway.
& Institutions, 18.9%
Muted inflationary pressure and continued trade negotiations have boosted the
probability for an additional rate cut in December as it is anticipated by some
Listed/REITs, 5.0% domestic and foreign markets. However, at the end of October, the U.S. and China
Private, 67.0%
were in talks for finalizing the first phase of a trade deal, potentially erasing the
need for another rate reduction if the preliminary agreement quickly comes to
fruition. This, along with positive economic indicators like strong wage growth,
sustained job creation and a rising 10-year Treasury, will continue to make future
Apartment Mortgage Originations decisions difficult for Fed members as they balance the array of forces tugging at
By Lender both ends of possible outcomes. Global developments including slowing Euro-
pean economies as well as the progression of Brexit and its potential aftermath
100%
will also help determine future Fed decisions. Though recession risks remain, the
Percent of Dollar Volume

Gov't Agency economy’s solid foundation has softened it in recent months, signaling continued
75%
Financial/Insurance domestic growth in the near future.
Nat'l Bank/Int'l Bank
50%
Reg'l/Local Bank
• Abundant liquidity balances conservative underwriting. Debt financing for
CMBS apartment assets remains strong, supported by a variety of lenders. Fannie Mae
25% and Freddie Mac, two mainstay apartment capital sources, were recently given
increased lending caps, allowing the two Government Sponsored Enterprises
0% to purchase $100 billion in loans during a yearlong period that started at the
15 16 17 18 1H19
beginning of the fourth quarter 2019. A wide range of local, regional and national
Includes sales $2.5 million and greater
banks; pension funds; insurance companies and CMBS sources will also remain
Sources: CoStar Group, Inc.; Real Capital Analytics active. All have responded to the falling interest rate climate by reducing mort-
gage rates, but lender spreads have widened as the 10-year Treasury rate remains
near cycle lows. Given the downward pressure on interest rates, lender caution
has risen, particularly for construction loans. Though lending is still available for
National Multi Housing Group
these types of projects, investors may need to blend mezzanine debt with other
John Sebree
capital sources until they prove out their concepts and substantially fill units. For
First Vice President, National Director | National Multi Housing Group
Tel: (312) 327-5417 | john.sebree@marcusmillichap.com
stabilized existing assets in most major markets, financing remains plentiful.

Prepared and edited by

Cameron Poe
Research Associate | Research Services

For information on national apartment trends, contact:

Atlanta Office: Michael Glass First Vice President/Dist
michael.glass@marcusmillichap.com
John Chang John Leonard First Vice President/Regional Manager
Senior Vice President, National Director | Research Services 1100 Abernathy Road N.E., Bldg. 500, Suite 600 Cleveland Office:
Tel: (602) 707-9700 | john.chang@marcusmillichap.com Atlanta, GA 30328 5005 Rockside Road, Suite 800
(678) 808-2700 | john.leonard@marcusmillichap.com Independence, OH 44131
(216) 264-2000

Price: $250 Columbus Office:

230 West Street, Suite 100
© Marcus & Millichap 2019 | www.MarcusMillichap.com Columbus, OH 43215
(614) 360-9800
Austin Office:

Cincinnati Office:
Craig Swanson Vice President/Regional Manager
9600 North Mopac Expressway, Suite 300
Austin, TX 78759
Colby Haugness Regional Manager
The information contained in this report was obtained from sources deemed to be reliable. Every effort (512)
was made to obtain accurate and complete information; however, no representation, 600 Vine Street,
warranty 10th Floor
or guarantee,
338-7800 | craig.swanson@marcusmillichap.com
Cincinnati, OH 45202
express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated based on the last month of the quarter/year. Sales data
(513) 878-7700 | colby.haugness@marcusmil
includes transactions valued at $1,000,000 and greater unless otherwise noted. This is not intended 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.
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; National Association of Realtors; Moody’s Analytics; Real Capital Analytics; RealPage, Inc.; TWR/Dodge
Pipeline; U.S. Census Bureau
Baltimore Office: Dallas Office:

Bryn Merrey Senior Vice President/Division Manager Tim Speck First Vice President/District M
100 E. Pratt St., Suite 2114 5001 Spring Valley Road, Suite 100W