Urban living: Chattanooga apartment market loses a bit of its sizzle

Urban living: Chattanooga apartment market loses a bit of its sizzle

December 29th, 2013 by Mike Pare in Business Around the Region

Arturo Mazano unravels an extension cord as construction continues on phase two of Walnut Commons apartments at the intersection of East Third Street and Walnut Street.

Photo by Dan Henry /Times Free Press.


95.1 Average percent occupancy of Chattanooga's apartment complexes surveyed as of mid-2013

30 Percent of apartment properties surveyed offering concessions to get new tenants

$37 Average monthly amount of concessions

Source: Rock Apartment Advisors

Michael VanSleen says he's tiring of apartment living and about ready to start looking for a house.

"I'd rather be in a house with a yard," he said outside his downtown Chattanooga apartment building. "It would be nice to own a house."

Some people, such as VanSleen, who may have rented in the past because of tighter credit standards, bigger home down payments or personal financial uncertainty, are getting back into the single-family market - or at least looking to do so.

The past year or so saw modest declines in both occupancy and rent from the prior 12-month period, indicating that the sizzling apartment market in the city has cooled off a little.

Still, Chattanooga's apartment market was "extremely strong" in 2013, and next year is shaping up as a healthy one as well, according to an industry expert.

"The market has taken a little bit of a dip," said David Wilson of the Rock Apartment Advisors consulting firm.

With more multi-family units raised over the past year and single-family home building up as well, apartment complexes in the Chattanooga area have started offering added rent concessions, or specials, to woo people into their buildings, according to the Birmingham, Ala.-based firm.

"When occupancy starts dropping, managers typically offer specials to keep occupancy high and attract residents," Wilson said.

For example, in June 2012, none of the 10 newest apartment properties in the city were offering concessions. A year later, six of the 10 were offering an average concession of $43 a month, according to Rock Apartment Advisors. Market-wide, the average concession offered grew from $12 to $37 a month, the firm reported.

Average occupancy dipped 2.5 percent in the 10 newest apartment properties in the city as of mid-2013, the company said. Those same complexes show a negative 2.9 percent effective rent growth rate over the past year mostly to due to an increase in concessions, it said.

That being said, average occupancy countywide was a historically high at 95.1 percent, down slightly from 96.9 percent in mid-2012, the company reported.

"Chattanooga is one of the stronger markets we track," Wilson said.

Occupancy remained high despite developers plans to put up several thousand more rental units in the Chattanooga area.

Rock Apartment Advisors said about 390 apartment units were delivered from mid-2012 to mid-2013. More than $100 million in new apartment complexes are planned for the area over the next couple of years.

Chattanooga builder John Wise said he's primarily concentrating now on multi-family housing. But he expects that to change in the future as the apartment market becomes saturated and there's more of a shift to home ownership.

"I don't think anyone knows for sure when that will happen," he said.

Wise also expects interest rates to rise significantly by 2015, as much as 2 to 3 percent above current rates. That will slow the housing market, he said.

"It will improve from what it is today, but keep it from being what it was five years ago," Wise said. "I hope that keeps the rental market good."

Mike Sarvis, president of Cohutta Banking Co., said that even if interest rates rise a little, they're still at historic lows.

"Even a bump in interest rates won't prohibit people from nesting and starting businesses," he said.

Bobby Adamson, owner of Adamson Development, said he believes the American dream of home ownership will come back.

"Right now, it's hard to get financing to own a home," he said. "It's more attractive to rent."

At the same time, Adamson said he's looking for a good year in 2014 and 2015 in terms of home building. "We just need the banks to get in line with what we see in terms of money," he said.

Rock Apartment Advisors said the Chattanooga apartment market is bolstered by a growing employment base, with the area still showing high occupancy rates across all age classes. But, he noted that the jobless rate in mid-2013 was slightly higher than a year ago.

The downtown apartment market remains strong with high barriers to entry, while a possible boom in new suburban construction has the potential to create a more competitive environment near Hamilton Place mall, according to the company.

Marcus Lyons, a commercial real estate broker in Chattanooga who specializes in apartments, said rents downtown have risen because of a lack of product, a growing University of Tennessee at Chattanooga and a thriving downtown.

"Owners look at rental pricing power as supply and demand," he said.

Rents around UTC have especially jumped amid a flurry of purchases and renovations of properties over the past year or so. About a dozen small-to medium-sized apartment buildings changed hands, including five that were sold twice in nearly 12 months.

In addition, a South Carolina company that specializes in offering housing near college campuses bought around a half-dozen sites near UTC.

Jack Powell, a downtown apartment renter, said he owns a home in Atlanta but is renting in Chattanooga and staying over during the week while undergoing classes in the anesthetist program at UTC.

"It's alright," he said about his apartment. "This is the only affordable place. Everything else is over-priced."

Contact Mike Pare at mpare@timesfreepress.com or 423-757-6318.