The apartment performance in Atlanta accelerated in recent months, pushing the market up the national leaderboard for several key metrics in 1st quarter 2021.
Atlanta ranked as one of the national leaders for apartment demand in the year-ending 1st quarter, absorbing roughly 17,210 units, a volume beat only by Dallas/Fort Worth. This annual volume in Atlanta – which topped already elevated concurrent supply volumes – was bolstered by strong quarterly demand, as over 2,320 units were absorbed in Atlanta in the January through March timeframe. That was 45% more than the market’s typical 1st quarter demand volume from the past five years. In fact, this solid quarterly volume capped off nine months of strong absorption for the market following the initial COVID-19 downturn in 2nd quarter 2020.
Strength in demand traces to Atlanta’s economy, which was less impacted by the COVID-19 recession than many other markets across the country.
One year after the start of the COVID-19 pandemic recession, U.S. employment is still down 6% from February 2020 totals. Atlanta’s employment base is also still below pre-pandemic levels, but the damage here is less severe at 4.9%. Salt Lake City is the nation’s only large apartment market to have returned to pre-pandemic norms as of March 2021.
The tepid loss of jobs combined with migration into Sun Belt cities, including Atlanta, has allowed for the strong absorption seen here, despite the headwinds of the pandemic.
Strong absorption pushed apartment occupancy in Atlanta to 95.5% as of March, a rate that is 100 basis points (bps) ahead of the year-earlier figure. Atlanta has traditionally trailed the U.S. for this measure, but increased demand, especially in the last nine months, pushed occupancy in Atlanta even with the U.S. at the end of 2020. This new tighter relationship continued into 2021 as well, as occupancy in Atlanta matches the U.S. norm of 95.5% as of March.
Solid occupancy has allowed Atlanta to avoid deep and sustained rent cuts. As with most markets, annual effective asking rent change went negative in April 2020 as the pandemic lockdowns went into effect. After bottoming out with annual cuts of 1.2% in May, however, Atlanta started to show notable improvement, and prices were climbing again by September 2020. In contrast, the U.S. saw annual pricing turn to rent cuts in May and has not made it back into positive territory since.
The pandemic not only had economic impacts but also exacerbated the bifurcation between urban and suburban performances. Suburban submarkets in Atlanta – like in the nation – had generally been outperforming their urban counterparts prior to the pandemic, and the performance gap widened in April 2020. Leading up to March of 2020, the delta between urban and suburban performance in Atlanta averaged 2.9%. This delta had doubled to an average of 6% between April 2020 and March 2021. In the year-ending March 2021, specifically, the difference expanded to 8.7%. It should be noted that urban performance has been rising recently, but the suburban performance has been gaining speed at a faster clip, which allowed for the widening performance gap.
Diving deeper into current suburban rent performance in Atlanta, six out of the national top 10 submarket performances in the year-ending March 2021 were in Atlanta, and all six were suburban submarkets. These neighborhoods include Henry County, Far South Atlanta Suburbs, Far West Atlanta Suburbs, Southeast DeKalb County, South Fulton County and Northeast Gwinnett County and range from annual rent growth of 12.5% to 16.7%. In fact, if we extrapolate a bit further, nine out of the top 25 submarket performances nationally in March were in Atlanta. All nine are suburban submarkets and have annual rent growth performance above 11%.
The other bifurcation trend is the pricing performance by asset class. Historically, Class A units in Atlanta fared the worst of the three product classes, while still performing at a positive annual rate. However, this changed in April 2020 as annual rent change in Class A product fell into negative territory and remained there until March 2021 when Class A rent change reached 0.2%. This steady climb since September has led to Atlanta’s overall good performance.
Another influential trend to keep an eye on is the performance of Class B assets in relation to their Class C counterparts. Class B and Class C assets in Atlanta had been showing similar performances until mid-2019, when annual rent change in Class B units starting trending downward. This downward trend continued until May 2020, when Class B bottomed out with rent cuts of 1.4%. This was when the gap between Class B and Class C rent growth was at is widest. However, since May, price positioning in Class B assets has been on a steady climb and overtook the showing in Class C assets in January, a trend which continued into March 2021. This strong comeback of pricing in Class B assets has played a large role in the suburban performance seen in Atlanta during the pandemic recovery.
Demand in Atlanta topped new apartment supply of 13,600 units delivered in the year-ending 1st quarter. This was the biggest volume of deliveries the market has seen in at least two decades. Even with historic completions, however, demand topped supply by over 3,500 units.
Looking forward, deliveries are expected to taper off to just over 8,000 units in calendar 2021, a little more than half of what delivered in calendar 2020. Even though demand will taper as well, the strong tailwinds of 2020 will keep average annual rent growth between 4% and 5% in 2021. And although supply is expected to outpace demand in 2021, occupancy will remain at a well-positioned and similar to its current rate.