MARKET SNAPSHOT
$1,224 3Q 2024
89.9% 3Q 2024
298 [YTD: 870]
0.3% 3Q 2024
0 BASIS POINTS
277 [YTD: 977]
Rental demand is rising but still lags behind new completions. Although net absorption is on track to hit a ten-year high in 2024, it remains insufficient to match the current pace of deliveries, which are averaging around 325 units per quarter.
The number of units in the construction pipeline has dropped by 41% since peaking in mid-2023. As a result, an average of only 153 units per quarter is expected to be delivered in 2025, representing a 53% reduction from the current rate. Meanwhile, net absorption is anticipated to remain relatively stable.
The increasing rental demand and shrinking construction pipeline have contributed to stabilizing the overall occupancy rate, which has remained largely unchanged since late 2022. Similarly, rent trends have leveled off in recent months and are projected to begin increasing more significantly in 2025.
Rental housing demand in Birmingham—as measured by net absorption—has remained strong over the past year, but still hasn’t fully caught up with the substantial influx of new units entering the market. Consequently, occupancy rates remain low, though a slowdown in construction starts should help fill vacancies. Since the start of 2023, demand has been on the rise, with net absorption exceeding deliveries in the current quarter, reaching 870 units for the year so far. While this figure surpasses Birmingham’s 10-year annual average of around 560 units, it is still slightly behind the 977 new units delivered during the same period.
Rental demand was strongest in Downtown Birmingham, which had 555 absorptions over the past year, accounting for 56% of all units absorbed in the metro area during this period. Shelby County followed, contributing over a third of the metro area’s total absorptions. In contrast, the Hoover/Vestavia Hills submarket experienced negative net absorption during the past 12 months, highlighting the regional variations in demand.
submarkets leading the way, recording 710 and 677 net new units occupied, respectively, showcasing the market’s improving performance.
Multifamily construction activity in Birmingham remains robust, with 1,500 new units delivered over the past year, a figure well above the city’s 10-year annual average of 810 units. However, construction activity has slowed recently due to rising borrowing and construction costs. The development pipeline has decreased from its peak of roughly 3,100 units last year to the current level of 1,800 units, which is still moderately higher than the 10-year average of about 1,350 units. Despite this, construction starts have come to a near halt recently, with none reported in the last two quarters, giving the market a chance to better align with demand.
Most of the new rental supply in Birmingham has been concentrated in Shelby County and Downtown, with each area accounting for about a third of the units delivered over the past 12 months. Additionally, the only other submarkets to see new completions during this period were Homewood and Outlying Jefferson County, which had around 250 to 300 deliveries.
construction has peaked, an additional 26,000 units are currently underway, representing an 11.4% expansion of inventory.
While the overall stabilized occupancy rate in Birmingham was significantly affected by demand not keeping up with new supply, it has recently stabilized and remained mostly unchanged since late 2022. During this period, it has fluctuated slightly between 89.8% and 90.0%, despite the influx of new construction. If absorption rates can stay above historical averages as the construction pipeline continues to contract, this stabilization phase may transition into increased occupancy rates in the near future.
Outlying counties in the metro area are performing well, with average occupancy rates ranging from 95% to 97%. In contrast, submarkets that have seen the most recent new construction have stabilized rates closer to the overall average of 89.9% for the current quarter. Average occupancy rates across all product classes have been consistent, ranging from 89% to 90%.
County leading at over 96%. Even the South End submarket, despite a large influx of new deliveries, maintained a strong 93.7% occupancy rate. Economic momentum is expected to support the multifamily market, with construction starts returning to pre-pandemic levels, signaling a tapering of new deliveries by 2025.
The influx of new apartment completions has led to a decline in occupancy rates, reducing landlords’ pricing power. As a result, average rents have increased by only 0.3% over the past year, reflecting the challenges posed by the oversupply in the market. Despite these issues, Birmingham remains a relatively affordable option compared to national and regional markets. The average effective rent in Birmingham is $1,224, significantly lower than the national average of $1,700 and below rents in larger Southeastern cities like Atlanta, Nashville, and Charlotte, where average rents exceed $1,600. Birmingham’s rents are slightly lower than those in Huntsville but still higher than in Mobile and Montgomery. This affordability makes Birmingham an attractive market for renters, despite the recent challenges faced by property owners in balancing supply and demand.
In terms of submarkets, Walker County and Homewood reported notable annual rent growth, with increases of 7.5% and 4.1%, respectively. On the other hand, Downtown Birmingham experienced a 0.9% annual rent decrease, likely due to the high concentration of new completions in that area. Rent trends also varied by property class. Low-tier properties saw the strongest performance, with a 3.5% increase in average rents over the past year. In contrast, mid-tier properties remained relatively stable, while the upper-tier segment faced more competition, leading to a 2.1% decline in rents.
where average rents exceed $2,000 per month, was hit hardest, with an 8.1% year-over-year decline. In contrast, high-demand areas like Lancaster County saw an average rent increase of over 3.0% during the same period. Looking ahead, rent performance is expected to stabilize by mid-2025 as supply pressures ease, especially in the luxury segment.
The regional economy in Birmingham continues to grow, with 7,100 jobs added over the past year, reflecting an annual growth rate of 1.3%. The education and health services sector was the primary contributor to this increase, accounting for 4,700 new jobs, or 59% of the total net growth. Additionally, the government sector added 1,600 jobs. Notably, Birmingham is one of the few major metro areas experiencing growth in the information sector, which saw a 6.2% increase in employment over the last year. The unemployment rate in Birmingham remained low at 3.1% as of August, significantly below the national average of 4.4%. These statistics highlight the resilience and stability of Birmingham’s economy, supported by substantial government employment, educational institutions, and competitive business and personal tax rates.
August 2024 ANNUAL JOBS CREATED
AUGUST 2024 EMPLOYMENT GROWTH
AUGUST 2024 Unemployment rate
4.4% us August rate
Nominal Change
from August 2023
to August 2024: 4,700
Percent Change: 6.1%
Nominal Change
from August 2023
to August 2024: 1,600
Percent Change: 1.8%
Nominal Change
from August 2023
to August 2024: 1,200
Percent Change: 3.7%
Nominal Change
from August 2023
to August 2024: 800
Percent Change: 2.0%
Nominal Change
from August 2023
to August 2024: 700
Percent Change: 1.4%
| Sector | Nominal Change from August 2023 to August 2024 | Percent Change |
|---|---|---|
| Education and Health Services | 4,700 | 6.1% |
| Government | 1,600 | 1.8% |
| Mining, Logging, and Construction | 1,200 | 3.7% |
| Manufacturing | 800 | 2.0% |
| Leisure and Hospitality | 700 | 1.4% |
| Trade, Transportation, and Utilities | 700 | 0.6% |
| Information | 400 | 4.2% |
| Financial Activities | 300 | 0.7% |
| Other Services | -100 | -0.3% |
| Professional and Business Services | -2,700 | -3.5% |
Tech startup CModel Data is relocating its headquarters from San Francisco to Birmingham, spurred by local investment and support from the Alabama-focused venture fund.
Coca-Cola Bottling Company United, Inc. is developing a new multifaceted Coca-Cola bottling facility in Birmingham’s Kingston community. The project will include a 150,000-square-foot office complex & a 300,000-square-foot warehouse
A large-scale retail center is planned in the city of Alabaster, which is expected to create hundreds of new jobs in the area. Construction for the project is scheduled to begin in 2025.
Although new completions are expected to outpace demand again in the fourth quarter of 2024, the shrinking construction pipeline indicates that deliveries will significantly decrease in 2025. With no construction starts reported over the past two quarters, deliveries are projected to be outpaced by absorptions next year for the first time since 2021. This trend will help fill both the new supply and existing vacancies. Combined with population and economic growth, this should support the return of higher stabilized occupancy rates and more substantial rent increases. As a result, average rent growth is forecasted to reach 2% by mid-2025 and 3% by the end of the year.
Sources: Costar; ESRI; U.S. Census Bureau; Yardi Matrix; U.S. Bureau of Labor Statistics
