Multifamily Boomtown: Huntsville, Alabama

[Caroline Davis]

Just thought I would share this great article.

https://huntsvillebusinessjour...

Multifamily Boomtown: Huntsville, Alabama April 21, 2023/in Community Development, Economy, Employment, Engineering, Featured, Housing, Lead, News, Real Estate, Resource, Workforce Development/by staff reports

The Rocket City is experiencing a multifamily boom more explosive than has ever been experienced.

As of December 31, 2022, our independent research indicates a total of 62 apartment communities comprising 14,685 units were actively under construction, while more than 30 other properties comprising 9,479 units were in planning.

For an area with a total apartment supply of approximately 33,000 units, the apartment market is on track to increase approximately 45% within the next two years.

These properties are spread across Madison County and portions of East Limestone County, excluding the City of Athens, and the majority are located in the City of Huntsville. A surge of just over 7,300 of units broke ground within the past 4-5 months.

Based on those 62 properties underway, we believe approximately 6,000 units will be delivered for occupancy in 2023 with between 8,000 and 9,000 units delivered in 2024.

For context, our data indicates 2,241 units in 21 properties were delivered for occupancy in the market in 2022 with 2,016 units in 11 properties delivered in 2021.

The last two years reflected dramatically higher unit deliveries than any year on record. The preceding three “lean years” with 627 units delivered in 2020, 797 units in 2019 and 142 units in 2018 allowed the local apartment market to strengthen dramatically, leading to record high rent growth and occupancy.

What’s triggering this explosion in apartment development activity? While the answer includes a myriad of factors, the answer primarily comes down to:

• Jobs, jobs, jobs – coupled with a surge in population to fill open positions
• A severe housing shortage existed in 2020 and 2021
• Strong apartment market fundamentals (i.e., high rent growth and high occupancy rates)
• Low barriers to entry and easy/cheap money

Huntsville’s status as one of the nation’s most well-educated STEM cities has been a prime attractor of major employers and their staffing needs, resulting in a doubling of the Huntsville Metropolitan Statistical Areas (MSA) annual population growth rate over the past five years.

The pandemic triggered a population migration across the country, helping to fuel Huntsville’s growth as it offers a great quality of life, high-paying jobs and easy access to abundant outdoor and cultural activities.

These attributes helped secure Huntsville’s rating as the No. 1 “Place to Live in the Country” by U.S. News and World Report in mid-2022, adding more fuel to the explosive growth and providing confidence for future growth.

Plentiful, easy-to-develop land and historically low interest rates are also strong attractors to developers seeking to supply the healthy demand being generated by the economic growth.

A 2019 study by Deloitte forecasted a need for 35,000 additional jobs over the following three to four years. The major economic accelerators include advanced manufacturing, aerospace, defense, biotech and virtually any technology-related job.

As of year-end 2022, major job recruiting websites reported there were up to 18,000 unfilled jobs in the Huntsville area. This, coupled with record-low unemployment near 2 percent, highlights the huge need for additional in-migration to fill the jobs.

These moves will also be needed to fill apartments, as industry source RealPage reported Huntsville’s demand for apartments totaled approximately 2,100 units in both 2022 and 2021 (which were record years for apartment absorption).

Given the sheer magnitude of the apartment pipeline underway, contrasted with the historical demand which falls significantly short of the supply being added, there is cause for concern for apartment owners and developers.

Huntsville’s population and household growth will need to continue to accelerate in the next two years to absorb all of the new units. Luckily, many of the largest employment drivers are already under construction or recently completed with considerable new staffing needed.

Anticipation is high for additional large-scale employment announcements, including the likely move of the U.S. Space Command.

However, any major slow-down in employment gains could be problematic for the apartment sector which is already beginning to feel the impact of the new supply with 18 properties in lease-up.

While Huntsville’s apartment market has entered uncharted waters, the area’s economic growth is exciting and robust, with new construction of retail, restaurants, nightlife, music venues and mixed-use developments almost everywhere you drive.

It is an exciting time for Huntsville’s residents, developers and investors alike and the employment outlook and potential for growth is unprecedented.

Optimism abounds in the Rocket City.

This is a guest post by David Wilson, MAI. Wilson is an apartment broker and Senior Director for Berkadia Real Estate Advisors’ Alabama office in Birmingham, Alabama. A resident of Huntsville for the past 30 years, David is also a former apartment appraisal specialist and apartment market housing analyst who has been statistically tracking and reporting on Huntsville’s apartment market regularly since 1995. The data within the article is from David’s first-hand research and in-depth analysis of the Huntsville market.