Written: November 3, 2017

Atlanta’s high-rise apartment market faces cooldown

After an unprecedented high-rise apartment boom, Atlanta is poised for a slowdown in new projects and a return to a renters’ market.

Several trends are merging to slow both construction and rent growth.

First, construction was started on 6,500 high-rise units in Buckhead and Midtown between 2015 an 2017, according to the Reid Report, a publication that tracks apartment development across the region. That is a historic level of apartment towers in the city’s development pipeline. Another 4,500 high-rise units remain under construction, according to real estate consulting firm Haddow & Co. It’s going to take some time for those apartments to fill up.

In fact, Atlanta didn’t have a high-rise rental market until this real estate cycle. Before that, almost all new residential towers were built as condominiums.

Another reason for the projected slowdown in apartment high-rises is the cost to develop them. Construction costs have soared more than 30 percent since 2010, when the first wave of projects started to form, according to market data.

And, now rents are struggling to keep pace with those costs. In fact, for some towers that opened between 2012-2015, effective rents are down as much as 10 percent, according to Haddow & Co.

Concessions are also being closely watched. In Buckhead, landlords are offering tenants up to two months of free rent if they will sign new leases, according to the Reid Report.

The fundamentals suggest next year Buckhead and Midtown may see the fewest number of new towers start construction since 2014.

“We are expecting a dramatic decline,” said Harvey Wadsworth, a development executive with Mill Creek Residential, which has a new high-rise under construction on Peachtree Road next to ritzy mixed-use development The Shops Buckhead Atlanta.

Apartment deliveries, or new units that come onto the market, is peaking in Midtown now and peaked in Buckhead two years ago, according to Mill Creek.

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It would have been difficult to keep up the pace. Consider that in 2015, Buckhead saw almost 3,000 new apartment units delivered to the market (the majority of those were high-rise). This year, deliveries are down 40 percent, says Mill Creek.

Midtown high-rise construction is peaking now. The neighborhood is expected to deliver 2,300 units in 2017, but could see that number fall to as few as 300 units in two years.

The spate of high-rise apartments over the past seven years was new for Atlanta. It was fueled by forces in the real estate industry that emerged in the wake of the Great Recession, including barriers to first-time home-buyers such as student debt, tighter mortgage requirements and a lack of affordable single-family housing supply.

Former Novare Group and Carter executive Conor McNally was in the middle of the condo boom more than a decade ago. McNally, who now is principal at Shelton McNally Real Estate Partners, isn’t buying the projected slowdown in new apartment towers quite yet, and he is joined by analysts such as Reis.

In its latest quarterly report, Reis observed, “The apartment market continues to withstand pressure from added supply. With so much construction underway, vacancy rates were thought to grow higher.”

But, “healthy job growth provided steady demand for apartments.”

McNally believes more companies moving into the urban core will continue to spur more apartment towers, but he also believes rents, at least for the moment, have peaked.

“Anyone with new towers under construction cannot reasonably expect the significant high-rise rent growth we’ve seen to continue, at least for now,” he said. “I think we are entering a period of rent stagnation.”

Asked whether Atlanta could see a renters’ market emerge, which is often marked by declining rents and bigger concessions, McNally said, “At least we are closer to one than we have been in the last several years.”

Ladson Haddow, vice president with Haddow & Co., said how the market shakes out comes down to supply and demand.

“Supply is outpacing demand, which is resulting in a competitive leasing environment,” Haddow said. “However, the urban core is experiencing superb job growth and is increasingly becoming a more desirable place to live. It is still too soon to determine how deep the demand pool is for the surge of high-rise units delivering to the market, but it does appear that we have generally reached a ceiling on how high rents can be pushed.”

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First look at 220-unit Chamblee project

A 220-unit apartment project could speed up plans to make a stretch of Clairmont Road in Chamblee at least a bit more walkable.

The Bainbridge Cos., which is expanding for the first time into the Atlanta market, is proposing the nearly three-acre project at Interstate 85 and Clairmont Road.

The company, based in Wellington, Fla., is primarily known for developments in East Coast markets such as Florida, North Carolina, Washington D.C., Maryland and Virginia.

It declined comment about the new project. But, it released images to the Chamblee Architectural Review Board, which meets October 3.

Bainbridge is seeking approval for variances allowing it to develop just under three acres at Clairmont Road near the Century Center Office Park and Interstate 85, according to the proposal submitted to Chamblee.

The property currently includes two vacant commercial buildings. Some of the land is owned by Highwoods Realty Limited Partnership, an affiliate of the real estate company Highwoods, which owns Century Center.

Long-term, the office park could be transformed into a higher-density

mixed-use node that’s a strong, regional employment center, according to Chamblee’s future development plan.

The Bainbridge Cos. project would also rise within walking distance of the Peachtree Creek Greenway Trail, a linear multi-use path that will one day connect Chamblee, Doraville, Brookhaven and the Atlanta Beltline.

Atlanta’s Niles Bolton Associates is designing the apartment project.

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Grady Memorial Hospital plans $13 million diagnostic center off Camp Creek Parkway

Grady Memorial Hospital Corp. plans to open a $13 million diagnostic center off Camp Creek Parkway inside its new medical office building.

The hospital on Sept. 22 filed plans with the Georgia Department of Community Health (DCH) to establish a multimodality diagnostic center. The project would require 32,000 square feet of interior build-out.

As Atlanta Business Chronicle reported in April 2017, Grady is opening an ambulatory care center, called Comprehensive Care Center of Camp Creek, on Princeton Lakes Way.

To build the new center, Grady partnered with Ackerman & Co., which has developed three other medical office buildings in the Camp Creek area.

Ackerman Medical founder John Willig in April estimated the building would cost $8 million to $8.5 million.

Grady will need to file a Certificate of Need and gain approval from DCH before beginning work on the diagnostic center.

The new MOB is slated to open in early 2018.

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Groundbreaking ceremony set for new state Judicial Complex

Gov. Nathan Deal and Georgia Chief Justice Harris Hines will preside Thursday at a ground-breaking ceremony for the new state Judicial Complex being built on the former site of the Georgia Archives building.

One of the most expensive building projects in state history at $105 million, the court building will be on Capitol Avenue in downtown Atlanta, just south of the Georgia Capitol. It will house both the state Supreme Court and Georgia Court of Appeals.

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Houston’s hospitals treat storm victims and become victims themselves

Water poured into hospitals. Ambulances were caught up in roiling floodwaters. Medical transport helicopters were grounded by high winds. Houston’s world-renowned health care infrastructure found itself battered by Hurricane Harvey, struggling to treat storm victims while becoming a victim itself.

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Sweet win: Ghirardelli Chocolate will lease up to 1 million square feet in Henry County

Ghirardelli Chocolate Co. looks like a sweet win for Henry County’s economy.

Ghirardelli will lease up to 1 million square feet in Lambert Farms Logistics Park, the large industrial real estate development about 45 minutes south of Atlanta, according to multiple people familiar with the plans.

The facility will be operated by Ozburn Hessey Logistics. Ghirardelli and OHLhave partnered on similar projects in big logistics markets such as Chicago.

It’s unclear how many jobs Ghirardelli will bring Henry County.

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Sarasota, Fla., OK’s deal committing Braves to spring training facility through 2048

The Atlanta Braves would be committed to spring training in Sarasota County, Fla., through at least 2048 under final agreements unanimously approved this week by the county.

The facilities and non-relocation agreements receiving unanimous approval this week also commit the Braves for paying for any cost overruns for the $75 million to $80 million complex in North Port, Fla., and set an October funding deadline. A key piece of funding still pending is a $20 million state grant; the agreements pave the way for that grant application, according to a story Tuesday in the Sarasota Herald-Tribune.

Sarasota County’s vote Tuesday was perhaps the most important to date to finalize the team’s move that has been more than two years in the making.

“We’re now the dead center of Major League Baseball,” Commissioner Charles Hines said. “Even if you don’t go to those games or don’t like them, it adds another feather to our cap, our community … we’ve got it all; what a great opportunity.”

Plans for the complex include a roughly 8,000-seat stadium, practice facilities and public multi-use fields. It will be located just south of the State College of Florida, Manatee-Sarasota campus near U.S. 41 and River Road in the West Villages commercial and residential district.

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