Counting Cranes: 5 of the Most Active Construction Markets

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.

ATLANTA

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 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.

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