Chattanooga ranks No. 3 in apartment cost growth

Chattanooga ranks No. 3 in apartment cost growth

January 19th, 2012 by Mike Pare in Business Around the Region

Construction crews continue to work Wednesday morning on the new buildings to be opened at Hayden Place Apartments off of Pineville Road in Chattanooga.

Photo by Ashlee Culverhouse /Times Free Press.

Chattanooga ranked with big metro areas such as San Francisco, San Jose and New York in apartment rent increases in 2011, pointing to signs of a rising local economy, officials said.

Brad Doremus of Reis Inc., a real estate trends company that issued the report, said he was "fairly surprised" Chattanooga was No. 3 nationally last year in rent growth.

He said that "different plants ... distribution centers are definitely giving the town a boost. That's definitely reflected in apartment demand."

Reis found that so-called "effective rents" in Chattanooga jumped by 3.8 percent for the year compared with 2.3 percent countrywide. Effective rents are those without any kind of incentives or concessions.

Becky Brooks, a past Chattanooga Apartment Association president and manager of Waterford Place on Shallowford Road, cited new industry moving into the area such as Volks-wagen and Amazon.

"We're seeing a lot of people coming from elsewhere to move to Chattanooga," she said.

Over the past three years, VW has hired 2,500 people while its suppliers locally have added hundreds, as well. In addition, Amazon hired upward of 4,000 people in the Chattanooga area during the past Christmas holiday, though at least half of those were seasonal workers.

J.Ed. Marston, the Chattanooga Area Chamber of Commerce's vice president of marketing, said the city has seen real dollars flowing into the economy from such projects.

"We're finding ourselves included in a list of cities we're not typically included in," he said.

The average effective rent in Chattanooga for 2011 was $625 a month, according to Reis. Nationally, the average rent was $1,009 a month.

New York has the highest effective rent at $2,876 monthly.

Doremus said Chattanooga experienced a 1.3 percent hike in effective rents in the fourth quarter alone.

"One percent in one quarter is definitely pretty strong," he said.

Cara Mober, regional manager for the apartment real estate investment trust MAA, cited the Chattanooga area's general economy along with trends in the housing industry. She mentioned what she termed unfavorable market conditions in the single-family home market.

Residential building starts in the Chattanooga region, including Hamilton, Catoosa, Walker, Whitfield and Bradley counties, declined 6.9 percent in 2011 below the previous year, according to a new report from Market Edge, a Knoxville consulting firm that tracks building activity.

Since 2005, home starts in the Chattanooga region have plunged by 74.6 percent, according to residential building permits issued in the area.

In 2005, 4,484 homes were started in the Chattanooga region. Last year, builders began building only 1,141 homes.

Brooks said there are some people who can afford to purchase houses, but they don't see that as a favorable investment now.

"They don't feel they'll get their money back," she said.

Mober said apartment construction has grown in the past year or so in Chattanooga, which she expects to continue.

Just Wednesday, a developer announced plans to turn the Chattanooga Bank Building downtown into 74 apartments.