New construction has slowed as shown by the number of issued permits. This "indicates the apartment supply is finally converging with the rising vacancies and falling rents," says Mike Crawford, Bullock Mannelly Partners' vice president. The metro area has about 450,000 apartment units. A new development trend is also surfacing.

"With higher land costs necessitating higher density development intown, mid-rise and high-rise projects are changing the face of the city skyline," Crawford says. As an example, he cites the affluent Buckhead district, about eight miles north of Downtown, which boasts the lowest vacancy rate in the metro area--8.3%.

Buckhead has two high-rise projects under construction with a combined total of 586 units. The Paramount at Buckhead, developed by Hanover Properties, will have 300 units in 39 stories with first units available in November. Regent Partners, developing the 286-unit Regent at Tower Place at Piedmont and Peachtree Streets, has an anticipated delivery date of April 2004.

Overall vacancies have improved to 10% from 10.6%, even as some submarkets have recorded a slight increase in vacancy during the past 12 months. Vacancies in North Fulton and Gwinnett county submarkets are down. North Fulton at 8.8 % and Midtown at 8.4% show the lowest vacancies next to Buckhead.

Average monthly rents are $953 for class A, $826 for class B and $731 for class C. "Although the average market quotes rental rate has remained flat at approximately $815 per month, effective rents have dropped more than 7% from first quarter 2002," Crawford says. "Conditions will likely remain strained into 2004, or until the economy and corresponding demand improve."

And concessions remain high. "The steady stream of new deliveries has eroded the competitive position of many existing properties," the analyst says. A market average of one month to two months free rent is being offered to prospective tenants, typically prorated over a 12-month lease. Class A properties are reporting the highest concessions at about $133 per unit, followed by class B at $129 per unit and class C at $86 per unit.