ATLANTA—Atlanta's multifamily market is looking up. With employees expanding in the metropolitan city, rental demand is rising. So says Marcus & Millichap's second quarter apartment report.

“The local economy is gaining momentum, resulting in steady job growth and fueling demand for rentals,” the report reads. “Metrowide vacancy has improved nearly 500 basis points since reaching a high during the downturn in 2009. Although conditions have tightened, the recovery has been uneven throughout the region.”

According to M&M, multifamily demand is strongest in the metro's core and northern perimeter as major projects and expanding employers drive growth. In Cobb County, the Atlanta Braves' new stadium and the $400 million mixed-use development right next to it is driving retail and residential construction.

What's more, a 2.2 million square-foot office complex in Dunwoody, GA broke ground early this year. State Farm will occupy one of the towers, bringing 3,000 workers to the area. All told, Atlanta employers will create 74,800 jobs this year, expanding payrolls 3.1%, M&M predicts. In 2013, 63,900 additional workers were hired.

“Positive economic trends in these areas have motivated multifamily builders to complete a wave of new apartments over the past year, and heightened construction will persist through 2014,” the firm reports. “While apartment deliveries are elevated, completions lag far behind pre-recession levels. In the southern metro, meanwhile, submarkets are maintaining double-digit vacancy rates.”

In 2014, builders will complete 7,000 multifamily units, according to M&M's report. That's a 1.6% increase in inventory. Last year, 6,700 apartment units came online. After falling 60 basis points in 2013, the firm predicts average vacancy will edge down 10 basis points to 6.9% this year. And tightening vacancy will allow operators to push up rents 3.4% to $893 per month, down from the 4.9% jump recorded one year earlier.

“Steady rent gains and growing investor optimism have sustained heightened investment in Atlanta,” M&M says. “Rising buyer demand, limited for-sale inventory and an uptick in new development have resulted in average cap rates compressing nearly 50 basis points over the last year to the high-6 to low-7% range, though first-year returns vary depending on property quality and location.”

According to the report, class A assets command cap rates beginning in the mid-4% area and garner strong interest from coastal and international buyers. Developers and local buyers are scouring the market for class B/C assets located inside the perimeter and employment hubs along GA 400, as well as Cobb and Gwinnett counties.

“Some of these investors are buying assets for the land and rebuilding the properties into townhomes and condos,” the firm concludes. “Buyers seeking higher risk are searching outside of the perimeter, such as southern outlying areas, where class C assets trade in the mid-7% cap-rate range.”