The short answer: absolutely. You don’t need to be a savvy commercial real estate professional to notice the impact multifamily has on Raleigh’s urban landscape. Areas like North Hills/Midtown, Downtown and Hillsborough Street are typically at the forefront of everyone’s mind when they think of new Raleigh developments, but it’s not just Class A development in the city’s urban core that has seen a boom.
Class B and C suburban product have seen the most significant rent growth through the cycle that continues to increase each quarter. Moreover, we are seeing new construction intensify along our suburban corridors.
Vice President, Colliers International
It’s also no secret that Raleigh has one of the healthiest economies in the country. The Milken Institute reported recently that Raleigh ranks No. 2 in the nation for creating and keeping quality jobs. Economic factors like wage and employment growth, quality of life, proximity to higher education and a bustling tech sector have created a perfect storm of dynamic economic activity.
Much to their chagrin, Raleigh natives haven’t done a very good job of keeping this a secret, and the number of fresh new faces coming to the Triangle continues to rise.
In fact, the Raleigh-Durham market grew by nearly 60,000 people in 2018 with nearly a quarter of these new residents falling into the 20 to 34 age range, a key demographic for driving multifamily demand.
With 4,570 units delivered in 2018 and an additional 7,141 under construction in the MSA, Class A rents have managed to remain stable due to supply steadily keeping pace with demand.
The average monthly rent for Class A is $1,605, up 44 percent from the $1,113 rental rate we saw in 2010. Park Central at North Hills is currently the high-water mark with rents achieving an average of $2.15 per square foot; The Dillon and Skyhouse Raleigh follow next in line, respectively.
It’s not just the urban core that’s getting attention, however. Adjacent submarkets also achieving excellent rents include Clayton and Garner to the southeast and Morrisville and Briar Creek to the northwest.
Companies like Infosys have announced that they have plans to create 2,000 new jobs near Briar Creek, which will create a significant spike in occupancies in that submarket by 2021.
In Morrisville, Research Triangle Park has become much more than a place to work with new projects like Bainbridge Lake Crabtree delivered in May.
Meanwhile, the North Cary/Morrisville submarket is clocking in with average rents at $1,158. This submarket was almost exclusively office buildings just a few minutes ago it seems.
To the southeast, Clayton and Garner have risen out of the shadow of Raleigh and are now bustling communities with a significantly shorter commute to downtown than many of Raleigh’s more renowned suburbs. HHHunt is now under construction on its second community with the delivery of Abberly Solaire scheduled for this summer.
Ultimately, the forgotten story in this market is rent escalations in the Class B/C segments. Investors looking for the largest returns on shorter term investments are seeking out value-add opportunities.
This cycle has seen more than 25,000 units trading in the suburban Class B markets with trades happening often two and three times in the past few years. As a result, rents in the Class B segment have increased, on average, nearly 35 percent from $0.77 to $1.14 per square foot since 2014.
Third-quarter 2018 saw the first decline in overall transaction volume in the market since 2015, but that’s only a reflection of the staggering amount of transaction volume during the past three years.
Multifamily made up 44 percent of the overall investment transactions in the market in 2018 with an overall volume of $1.7 billion, as of the end of third quarter.
The takeaway is simple — Raleigh’s multifamily market continues to exhibit healthy activity on all slices of the market spectrum.
Edward Finley, Financial Analyst at Colliers International’s Raleigh office, contributed to this article.
This story originally appeared in the January edition of Southeast Real Estate Business.