I'm afraid the party is over and there are going to be some tough times for some developers.
The median rent quoted for a typical two-bedroom apartment in Chattanooga jumped 9.9% in the past year as housing prices continued to outstrip the gains in income.
But with an abundance of apartment units coming on the Chattanooga market, especially downtown, those quoted higher rates may be offset with generous signing bonuses as landlords try to fill empty units.
"There are lot of higher rates quoted for investors, but there are also as many discounts and sign-up bonuses for new tenants as I have ever seen," said John Wise, president of Wise Properties and one of the biggest developers of apartments in and around downtown. "I've been doing this for 13 years and it's been a good ride, but I'm afraid the party is over and there are going to be some tough times for some developers."
A new report released Monday by the online rental service Zumper said the median rent for a two-bedroom apartment in Chattanooga rose over the past year by the third fastest among all of the top 100 U.S. cities, rising by more than $88 a month to an average of $890 a month. The median rate for a one-bedroom apartment in Chattanooga rose by 2.6% in the past year to $780 a month, Zumper said.
Chattanooga's quoted rental rate increases were far higher than the national averages, but Chattanooga's rates still remain more than 35% below the U.S. average. Overall, the national one bedroom rent grew 0.3% to $1,220 last month, while two bedrooms dropped 0.1% to $1,469.
Chattanooga's quoted rental rates rose more than the average 2.4% gain in hourly wages last year in Chattanooga. But Zumper said Chattanooga rental rates remain in the bottom quartile of major cities.
Chattanooga rental rates are still only about 20% of those in San Francisco, the most expensive rental market where a one-bedroom apartment now rents for $3,720 a month, Zumper said.
Chattanooga's comparatively lower building and land costs, combined with above average job growth in recent years, enticed more apartment development as part of nearly $1.2 billion of new private investment in the downtown area since 2015.
River City Co, a downtown development agency, said the central city and nearby Southside and North Shore have added 3,223 apartment units and 1,917 beds for students at the University of Tennessee at Chattanooga since 2015.
Fastest rising US rents
For two-bedroom apartments, rents have increased the most in the past year in:1. Chandler, Arizona, up 16% to $1,4502. Boise, Idaho, up 13.4% to $1,0203. Chattanooga, up 9.9% to $890Source: Zumper research data for median rents for all homes available or vacant inn June 2019.
With the record number of new apartments added in and around downtown in recent years, some projects like the proposed apartments in the First Tennessee Bank building have been delayed while other complexes such as the Market City Center and the former Clemons Apartments have been converted, at least in part, to hotel rooms.
But apartments are gaining favor as more residents relocate to Chattanooga and want to live in or near the central city and others are less eager or able to buy a home.
"The Chattanooga real estate market is very hot," Marco Santarell of Norado Real Estate Investment said in a report on the local market earlier this year. "Homes are selling so fast that some stay on the market only a few hours. The booming economy has made it more difficult for Hamilton County residents to find a home. This shows that the Chattanooga market will remain competitive for both buyers and investors in 2019."
Such market analysis spurred outside investors from Atlanta, Memphis, Birmingham and Knoxville to build hundreds of new apartments in the downtown area.
But many of those new developments are now offering price breaks or incentives to help draw residents. Bluebird Row Apartments near the Chattanooga Choo Choo is offering a "lucky Seven" deal with $777 off the first months rent, plus a $777 gift card and only a $77 down payment, along with a chance to win an entire year's rent for free. The 1400 Chestnut apartments are offering a month free of rent plus other incentives for new tenants. The 5 Points North Shore apartment complex is offering new tenants the first month free and $200 off per month from the quoted price per unit.
"There are a lot of incentives to get people to move in right now," Wise said. "We've got a lot of capacity to absorb in the next few years."
Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.