published Sunday, October 28th, 2012

Chattanooga's apartment market is one of strongest in Southeast

Lynda Williams stands outside her apartment at Waterford Place Apartments on Shallowford Road.
Lynda Williams stands outside her apartment at Waterford Place Apartments on Shallowford Road.
Photo by Alyson Wright.

Area markets

South River/Hamilton Place mall

The majority of the apartment units were built in the 1980s, but the area also features most of Chattanooga's newer properties with six built since 1999. The newest is Amberleigh Ridge, completed in May 2011.

North River

This market features mostly 1970s to 1980s vintage properties scattered across a broad area. The largest concentration is along the Mountain Creek Road corridor. Hayden Place Apartments and City Green at NorthShore are the newest in the area.

Downtown

Although downtown does have a fairly sizable concentration of apartments for a city of its size, almost all are relatively small properties under 60 units or "affordable" apartments. Walnut Commons is under construction and will add 100 units, while another development near Finley Stadium could add 160.

East Ridge/Central

Little new development has occurred in this market over the past 15 years, with the exception of several low income housing tax credit properties.

Source: Rock Apartment Advisors, newspaper archives

When Chattanooga apartment dweller Lynda Williams thinks about buying a house, she gets nervous over the instability in the market and the expense of upkeep.

"I've thought about it a couple different times," said the Waterford Place resident. "I've looked at different places. I don't know if I'm ready."

In the wake of the housing downturn and tighter credit limits, many would-be homebuyers are reluctant to buy, helping Chattanooga's apartment market to sizzle, according to a new study.

After years of rising homeownership, the share of Americans who own their home has declined, and Chattanooga renters such as Williams are keeping apartment complexes nearly full.

Chattanooga's apartment market is one of the strongest in the Southeast, said a study by real estate services firm Rock Apartment Advisors in Birmingham, Ala.

Driven by a growing employment base, occupancy at the 53 properties surveyed by the company was 96.9 percent this summer. Of the city's 10 newest properties, occupancy was 97.4 percent. That's up 6.2 percent in a year.

"Chattanooga is one of the hottest markets," said David Wilson, primary analyst for Rock Apartment Advisors. "It's outperforming a lot of markets."

The company reported that for the 10 newest properties, effective rent growth -- increases without concessions such as move-in specials -- grew "a very healthy" 5.2 percent in the past year.

"The burn-off of concessions coupled with increases in quoted rents have resulted in significant widespread effective rent growth," the report said.

Such growth is strong across all assets classes, age groups and submarkets, it said.

Of 53 apartment complexes surveyed in Hamilton County, 31 have a higher occupancy rate than a year ago, the study showed. Only 16 reported lower occupancy, the report said.

Lifestyle changes

Since the recession, Wilson said, apartment living is more of a lifestyle option.

"More people are opting to rent who otherwise would have bought," he said.

Even though interest rates for home borrowing are low, many people don't have the credit or savings, or they don't see near term appreciation in the value of houses, Wilson said.

Nationally, the homeownership rate fell in the first quarter to the lowest level in 15 years as more Americans lost homes to foreclosure and shifted to renting amid the weak economic recovery, according to The Wall Street Journal, citing census data.

Economists say the rate could slip further. While low mortgage-interest rates and falling home prices have made homes more affordable than at any time in the past decade, mortgage-lending standards remain tight. Also, more Americans may feel less confident about property ownership after the steep price declines of the past six years.

In recent years, Chattanooga has seen large apartment complexes built, such as City Green at NorthShore, Hayden Place and Amberleigh Ridge.

In addition, smaller apartment buildings have arisen or are under construction, such as in downtown. At least three buildings are under way and more are planned.

Pent-up demand

Kim White, who heads the downtown nonprofit redevelopment group River City Co., said there's a lot of pent-up demand in the city's core.

"We're thrilled to have this finally take shape," she said.

Wilson said Chattanooga's downtown is special for a midsize city. "Chattanooga's got a fantastic downtown," he said. But, as many downtowns, there's typically a lack of housing, Wilson said.

Chattanooga developer John Clark, who is leading a group in the construction of a 100-unit, $11 million apartment building downtown, said central city workers are one of his targets.

"The market is certainly ready," Clark said, whose studio, one- and two-bedroom apartments will rent for between $750 and $1,200 a month.

However, local developer John Wise, who has built several downtown apartment buildings in recent years and has more planned, wondered if the central city market is getting saturated.

"It reminds me of the housing boom," he said. "When you start seeing ... people who are not developers start doing something, that's when it's time to change."

Countywide, however, the apartment market remains strong and doesn't appear to have hit the saturation point, said Becky Brooks, who manages Waterford Place off Shallowford Road.

"Occupancy remains strong," said the former Chattanooga Apartment Association president, adding she's not seeing a lot of rent specials. "That's usually one of the first signals."

According to Wilson, if the local economy remains upbeat, the apartment market will remain healthy.

Chattanooga showed employment growth of 2,120 people from June 2011 to last June, the report said. Also, the county's jobless rate fell from 9 percent in June 2011 to 8.2 percent in June 2012.

"As long as the economy continues to grow in a similar pattern, it should do well," Wilson said.

The report cited the growing Volkswagen auto assembly plant as well as the Amazon distribution center, which also is adding jobs at Enterprise South industrial park.

"Additional spin-off employment has helped Chattanooga's economy," the report said.

At the national level, the Census Bureau said the home ownership rate fell to 65.4 percent at the end of March, the same level as in early 1997.

Before the housing bubble of the past decade, the rate grew very slowly. It rose to about 66.2 percent in 2000 from 64.2 percent in 1990, according to the federal decennial census. Homeownership slipped slightly during the 1980s, the first decline in the post-World War II period. It increased by 1.5 percentage points in the 1970s and by 1 percentage point in the 1960s.

But the homeownership rate rose sharply during the past decade, to a peak of 69.2 percent at the end of 2004. It has fallen steadily since housing prices began dropping in 2006.

about Mike Pare...

Mike Pare, the deputy Business editor at the Chattanooga Times Free Press, has worked at the paper for 27 years. In addition to editing, Mike also writes Business stories and covers Volkswagen, economic development and manufacturing in Chattanooga and the surrounding area. In the past he also has covered higher education. Mike, a native of Fort Lauderdale, Fla., received a bachelor’s degree in communications from Florida Atlantic University. he worked at the Rome News-Tribune before ...

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