Backed by a historically prudent development profile, a strong recent performance on the part of demand, low vacancy and formidable rent growth have opened the way to new development. In sum, market-rate net absorption through the first half of the year, accompanied by 128 units of new supply, was 276 units in Chattanooga’s 15,800-unit apartment market. At 3.6%, the second quarter vacancy rate was down 40 basis points for the quarter and was down 220 points year-over-year. At $660 and $638 per month, second quarter average asking and effective rents were up 1.4% and 2.1% since year-end behind respective increases of 3.4% and 3.8% all told, in 2011. Reis’ First Glance report of its third quarter data, indicating additional positive net absorption, lowers the vacancy rate to 3.4% and adds $5 to the mean asking rent.
While developers are moving forward with a few substantial projects, development on the whole proceeds judiciously. By Reis’ mid-October count, 2012 will see the delivery all told of two projects with a combined total of 410 units. The 128-unit second phase of the Hayden Place project completed in February in the North Chattanooga submarket. Located beyond submarket boundaries (and thus not contributing to the net absorption calculation), the 282-unit City Green at Northshore delivered in January at 200 City Green Way, Chattanooga. Per the date of the report, 378 units in two projects were under construction. Of these, particular attention has been given to the $11 million, 100-unit Walnut Commons at Walnut and E. 2nd streets downtown. Earlier in the year, the Times Free Press described the five-story project as “the biggest downtown apartment complex in decades.” Not long after, however, a still larger project was proposed for downtown. See Special Real Estate Factors for more information. In May, meanwhile, the $19 million, 278-unit Integra Hills Apartments from Integra Land Company broke ground in south suburban Collegedale near the town of Ooltewah. Additional apartment development is planned for this area, the Times Free Press reported in June.
Reis expects the vacancy rate to run in the vicinity of 3.0% through 2013. Gains of 2.9% and 3.8% are forecast for the mean asking and effective rents for 2012 with similar growth rates to follow. The new activity downtown bears watching.