Aytek Gurkan

A strong employment sector: Check. Solid rent growth: Check. Cultural hubs that have multigenerational appeal: Check.

Metro areas that can check those boxes have been gold mines for landlords since the economy crawled out of the Great Recession. Nationally, rent growth eclipsed 4% for the seventh consecutive quarter in the first quarter of 2016, ­according to Dallas-based Axiometrics, as occupancy came in at 94.8%.

When the economy collapsed, multifamily projects from coast to coast dwindled. So when developers regained their footing, cranes slowly began popping up in every metro. But since construction began, some markets have seen far more activity than others.

Since 2010, the Houston metro has delivered 59,160 units, good for most in the nation, according to Axiometrics. Dallas was close behind, with 56,220 units delivered, followed by the Washington, D.C., metro (42,819); Austin, Texas (31,937); and New York City (29,426). Texas and its 202,737 units delivered since 2010 rank first, more than double ­second-place California’s 87,774 units.

Most developers say the construction boom is driven by demand, and The State of the Nation’s Housing 2016 report from the Joint Center for Housing Studies backs that claim with data that show there are now 9 million more renters than a decade ago. Moreover, the report states, 36% of U.S. households opted to rent in 2015, the largest share since the 1960s. For the time being, developers seem intent to strike while the market is hot, especially in certain areas, although land and construction costs have risen steadily.

We examined the five metros where a submarket has delivered over 9,000 units since 2010. We wanted to figure out what’s really driving development. Is it demand? A combination of demand and strong investor appetite?

The metros we discuss on the following pages—Atlanta; Dallas; Houston; San Jose, Calif.; and Seattle—have their share of similarities and differences, as construction seems to have peaked in some and is picking up in others.


Metro Data

Population: 464,000
Units built since 2012: 20,884
Average rental rate: $1,098

Twenty years ago, Atlanta hosted the Summer Olympic Games, where ­Muhammad Ali memorably lit the eternal flame to officially kick off the event. But before Ali and athletes from around the world came to Atlanta, a tremendous amount of infrastructure was built for the spectacle, including Centennial Olympic Stadium, where Ali did the lighting and which is now Turner Field, home of pro baseball’s Atlanta Braves.

Now, though, a new Braves stadium is under construction north of ­Atlanta’s heart, in Cumberland, and a massive mixed-use development is in the works nearby. The project, The Battery Atlanta, will feature 531 luxury apartment units, all built by locally based Pollack Shores Real Estate Group. It’s one of four projects the firm has under construction in the metro (about 1,350 units total), and the company just closed on two more sites with a combined total of more than 680 units.

“There’s a lot happening here,” says Michael Blair, managing director of development for Pollack Shores, adding, “There are many more people who are interested in a luxury rental option.”

The Buckhead neighborhood, a more-established destination just north of the city’s downtown, has been booming in recent years, industry professionals say. Post Properties opened a 340-unit building there last year that’s exceeded its pro forma estimates, chief investment officer David Ward says, and was more than 80% leased in June, with expectations of being fully leased by the fall.

Post is also erecting a 360-unit building in Atlanta’s Midtown that’s ­expected to open next year, as well as a 438-unit project next to Centennial Olympic Park set to open in 2018.

Aytek Gurkan

North American Properties (NAP) launched its multifamily division in Atlanta less than six years ago, and Richard Munger, VP of development, says the market has been strong. NAP currently has two projects in the works in the city, including a massive, 86-acre development in the wealthy suburb of Alpharetta that will house 526 apartment units when finished. The first phase of the community has opened, and Munger says the median age of its renters is 46, with household incomes around $250,000. The demand, he says, is evident.

The other NAP project under construction is a 244-unit building in the Old Fourth Ward, transformed in 2014 when a former Sears distribution center was converted into a vibrant mixed-use development, Ponce City Market.

Major companies, including UPS, Mercedes-Benz, and Porsche, have moved their operations to Atlanta in recent years, helping fuel job growth, explains Mitch Harrison, CEO of First Communities. The Atlanta-based third-party manager manages roughly 14,000 units there. “Atlanta has always been our bread and butter, but we’ve seen a tremendous amount of growth in terms of new business, new clients, since 2008,” he says.

Can this torrid pace of construction continue? ­Harrison says many of the popular neighborhoods for developers have gotten ultra-competitive post-recession. Ward says the city has absorbed the new units that have come on line in recent years but is prepared for a slowdown.

“Starts are still accelerating, so while I don’t think we’ll have a major problem, there are probably some markets that are getting a little bit soft,” Ward says. “I sense it will be a little tougher going in ’17–’18, but fine long term.”

If developers continue to build unique projects, people will pay to live in them, Blair adds. “Even if it doesn’t continue on a pretty incredible uphill climb that we’ve seen since the recession,” he says, “it feels like the demographics are really strong for continued steady growth.”

See next: Dallas and Houston