The Cobb County apartment market has been on fire in recent years due to the high number of foreclosures and families losing their homes. Despite attractive interest rates, home buyers remain on the sidelines due to stringent mortgage underwriting. It has really been the perfect storm for apartment communities. Now that the great recession is supposedly behind us and the Georgia tax assessors are able to increase values, you can expect apartments to be in the crosshairs of the Cobb County tax assessor.
In the fourth quarter of 2012 Real Estate Research Corporation shows that apartment properties in the Atlanta Metro area have an average going-in capitalization rate of 6.4%. This is the lowest capitalization rate that they reported for any commercial property class in the Atlanta area. This cap rate is for first tier investment properties, which are defined as new or newer quality construction in prime to good locations.
For second and third tier properties, Real Estate Research Corporation surveys by region, and the Atlanta area is in the South region. For second-tier investment properties, which are defined as aging, former first-tier properties, in good to average locations in the South region Real Estate Research Corporation shows an average going-in capitalization rate of 7.5% for apartments. For third-tier investment properties, which are defined as older properties with functional inadequacies and or marginal locations Real Estate Research Corporation shows that the average going-in capitalization rate for apartments is 8.6%. They also reported that apartment properties retained their top investment conditions rating among the various property types. It is interesting to note that the capitalization rate on third tier properties is nearly as low as the first tier properties of some other commercial property types (industrial flex and hotels at 8.4%).
Realty Rates is another service that surveys capitalization rates for different property types. Realty Rates does not break their data down into metro areas or regions, instead using an average for the entire country. They report there is little difference between their national numbers and cap rates at the local level. Realty Rates shows average surveyed capitalization rates of 8.8% for all types of apartment communities. The highest surveyed rate was 13.49% and the lowest surveyed rate was 3.95%. For garden apartments and suburban townhouse apartments the average surveyed rate was 8.04%. The highest surveyed rate was 12.12% and the lowest surveyed rate was 3.95%. This data from Realty rates is also taken from the fourth quarter of 2012.
According to Reis Inc. the apartment sector vacancy rate decreased 20 basis points to 4.5% during the fourth quarter of 2012 and net absorption was nearly 47,000 units. Asking and effective rents each grew by 0.6% during the fourth quarter. This is indicative of the continued strength in the apartment market and further evidence the Cobb County tax assessor will take note of before sending out 2013 tax assessment notices.
