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Resurgent Job Growth Fueling Multifamily Demand in Birmingham, Alabama

CoStar Market Insights: Manufacturing and Business Services Drawing New Renters
September 13, 2018
Aerial of the 4-Star The Harbor on 6th apartment complex that delivered in 2017 in Tuscaloosa, Alabama.

Birmingham has experienced a recent resurgence in job growth, led by strong manufacturing and office-using employment. As a result, multifamily fundamentals, especially among high-end properties, have continued to strengthen.

Many parts of Birmingham were arguably overbuilt during the middle of the cycle. From 2014 to 2016 close to 3,000 units came on line, increasing the 4- and 5-Star inventory by nearly a quarter. However, building has slowed since then and job growth has accelerated. This uptick in demand has helped compress vacancies substantially, from north of 10 percent in the beginning of 2017 to sub-8 percent levels moving through 2018.

Birmingham trailed the nation in job growth nearly every quarter since the recession. But some big moves have helped re-accelerate the job market in the city. Alabama has become a popular destination for automobile manufacturers, with more than 26,000 employed in the industry statewide. And thanks to a friendly business climate and an able workforce, Birmingham has enjoyed a share of this growth.

Autocar, a truck and parts manufacturer, announced it would open a new 1 million-square-foot facility that will provide more than 750 jobs paying around $60,000 annually. Kamtek, another parts manufacturer, expanded its employment base in the city by over 10 percent in 2017. Other big-name parts suppliers such as MollerTech and Grupo Antolin have also come into Birmingham in recent years. In total, manufacturing employment has grown by 3.7 percent since 2016, topping the national figure by nearly 100 basis points.

Office-using employment has also grown throughout the Birmingham area. Professional and business services have been the largest driver of this. Earlier this year, grocery-delivery company, Shipt, announced it would be expanding its headquarters in Birmingham by more than 880 people. These jobs will have an average salary of about $50,000 per year.

The improving job climate has drawn people into the area and as a result, in-migration is at its highest level since 2010. These high-paying jobs have also helped drive demand for high-end units across Birmingham. Much of the apartment demand has been for 4- and 5-Star units. This cohort has accounted for more than 85 percent of the absorption since 2016. Metro-wide, the 4- and 5-Star stock has a comparable vacancy rate to the 3-Star cohort, despite charging rents nearly 50 percent higher.

Strong demand for high-end units, coupled with a recent slowdown in construction, has helped amplify rent gains across Birmingham. Rents have grown 5 percent since January for all multifamily classes. While this is certainly impressive for the historically slow-growth city, the high-end properties have been able to push rents even more. In 2018, 4- and 5-Star units have increased rents by nearly 9 percent. Remarkably, these single-year gains represent a larger cumulative increase than experienced from 2012 to 2017.

High-paying jobs in both the manufacturing and professional and business services sectors have helped drive demand for 4- and 5-Star apartments across Birmingham. However, these gains could prove hard to sustain if job growth slows.

CoStar Market Insights provides a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 390 metro areas, with a granular understanding of the projects, players and economic trends that move these markets.

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