Huntsville, Alabama is in the midst of the most explosive period of economic growth since the 1980’s, triggered by huge job growth, record effective rent growth (over 6 percent in each of the three past consecutive years), and strong occupancy (a four-year average of over 94 percent). This dramatic “firming” of the market has developers eager for sites that are candidates for multifamily development and the development pipeline reflects that.
An unprecedented pipeline
A total of 23 apartment properties (5,801 units) were actively under construction in the Huntsville/Madison area as of year-end 2020 and at least another 32 properties (totaling over 7,850 units) were being planned, but not yet started. This new pipeline of over 13,650 units eclipses all previous pipeline counts and would comprise 50 percent of the existing stock of this segment of the market. The majority of the new product is focused in the West Huntsville submarket.
Multifamily developers are very excited about the economic explosion occurring and the Rocket City’s status as one of the nation’s most well-educated STEM cities with a labor pool of rocket scientists, engineers, logisticians and other brainiacs. Several major economic accelerators are fueling the growth.
Exceptional job growth
Space frontier trailblazers like SpaceX and Blue Origin are building rocket plants in Huntsville. Facebook is building a massive $750 million data center. The FBI is building a $1 billion campus on a 1,600-acre portion of Redstone Arsenal to employ thousands. Toyota-Mazda is constructing a 3.0 million square foot automotive manufacturing plant that will employ 4,000 people and has already spawned three suppliers. A 2019 study by Deloitte forecast a need for 25,000 additional jobs within the next three years, which would be the most substantial employment forecast in decades.
While the COVID-19 pandemic initially triggered business closures and job losses, Huntsville’s economy has been resilient, and unemployment is almost back to per-COVID levels. Class A and B owners have experienced nominal impact on delinquency or occupancy. The influx of people, coupled with Alabama’s commitment to allow businesses to stay open and the ability of much of Huntsville’s largely professional workforce to “work from home,” has allowed the economy to remain strong.
Multifamily market trends
Optimism abounds for Huntsville with its employment outlook and strong multifamily construction pipeline, and a few notable multifamily trends are emerging:
- One-story product is becoming popular. Some of the one-story product will compete with the highest rent properties in town.
- Downtown is exploding. The five properties in the pipeline for downtown Huntsville would more than double the existing unit count which is only comprised of 519 units in three properties, excluding public housing and one very small 1920’s era property.
- Elevator product is becoming increasingly popular. Although most feature open-air hallways/corridors and surface parking, the two MidCity projects are expected to be the swankiest product in the market targeted for a top-of-market $2.00/SF and even higher for the senior product. Compare that to the more typical Class A rents which have been in the $1.15 to $1.60/SF range for new garden-style suburban product with surface parking.
- South Huntsville is ripe for development. Two properties are slated for the Southeast submarket. Historically Huntsville’s top-performing submarket, the Southeast submarket has only seen three conventional properties added in the last 30 years due to scarcity of land. Southwest Huntsville has four projects planned. Totaling 734 units, these projects represent the first new market-rate apartment communities in this submarket since the 1980’s.
Of course, the COVID-19 pandemic has triggered delays in development timelines and several are now “on pause,” and history tells us that with each new project start, timing for others downstream in the pipeline could be affected. However, those with the most compelling location, most appealing product offering, and best execution and team will have the greatest chance of success. It is certainly an exciting time for Huntsville’s residents, developers and investors alike.