The Charlotte multifamily market continues its strong recovery and shows no signs of slowing down. All facets of the multifamily market are improving with tightening apartment fundamentals, increased transactional volume and the announcement of several high-profile development projects.
According to RealPage MPF Research, the Charlotte market has experienced 6.8 percent rent growth during the past 12 months, which ranks third in the country behind only San Francisco and San José, California. The market has also absorbed more than 3,300 units in the same time period, lowering the overall market’s vacancy to approximately 6.5 percent — the lowest vacancy figure seen in Charlotte in more than a decade.
Transaction volume in the Charlotte metro, while only half of the activity level in the Triangle market, has been relatively strong with approximately $800 million in sales during the past 12 months. Capital sources continue to flock to the highest-grade assets, particularly infill locations, where historically low interest rates boost investor returns. A recent illustration of this trend was Atlanta-based Post Properties’ purchase of the 360-unit Circle at South End from Crescent Resources for $74 million or $205,556 per unit, a record per-unit price for a garden-style community in the Carolinas.
On the development front, Charlotte’s strong apartment recovery has attracted the interest of local and national development firms with more than 3,100 units currently under construction and an additional 8,000 units in various stages of the planning process. The majority of new development projects are located in infill locations, including Uptown and the surrounding submarkets such as SouthEnd, NoDa (North of Davidson) and Elizabeth. In addition, two affluent suburban submarkets, the Southpark and Northlake areas, have projects currently under construction.
In Uptown Charlotte, the core business district, no market-rate apartments have been constructed since 2002. However, a few condominium projects that were constructed between 2008 and 2011 have been converted to apartments and contributed more than 1,100 units to the rental stock in Uptown. These conversions include Catalyst, Enclave and Quarterside. The highest profile failed condo project, The Vue, will soon begin leasing the remaining 391 unsold units. Despite this influx of units, Uptown’s fundamentals continue to outshine all other submarkets in Charlotte, with the lowest vacancy rate at 3.5 percent and highest monthly rents of more than $1,200. These fundamentals, buoyed by the high concentration of young professionals in high-paying positions, have attracted the interest of apartment developers with more than 1,000 new units being planned.
In SouthEnd, multiple projects are under construction along Charlotte’s light rail system. JLB Partners, Colonial Properties Trust, Proffitt-Dixon Partners and Mid-America are currently building more than 850 units at various points along the rail line. The explosion of apartment development in SouthEnd is driven by factors such as the award-winning light rail public transportation infrastructure; the emerging retail, restaurant and entertainment options; and the close proximity to Uptown Charlotte, which has created a very desirable urban lifestyle that appeals to the surging Generation Y renter pool.
The Southpark submarket, with historically high barriers to entry, will deliver two new rental communities beginning in the summer of 2013, including a high profile project by Crescent Resources called Circle at Southpark, a $52 million, 321-unit property located in the heart of Southpark.
The Northlake submarket has also been a hotbed for development. Charlotte-based Charter Properties recently completed a 264-unit community called Longview. Nearing delivery are Ashton Reserve at Northlake, a 330-unit property developed by Tynes Development, and Madison Square at Northlake, a 285-unit property developed by Spectrum Properties. Wood Partners recently began work on a 246-unit community called Perimeter Lofts, which will begin leasing in the summer of 2013.
While the development figures appear elevated, the overall activity is still within historical norms when considering the historically low deliveries of the past 18 months. Any resulting softness in the market should be contained to select submarkets, but strong demand should minimize the overall impact. In addition, developers still face headwinds from the capital markets, which will aid in keeping supply in check. The projected rent growth of 4 percent to 5 percent, while still strong, is expected to be slightly off from the nation-leading rent growth during the past 12 months.
The surge of population in the prime renter age bracket and the paradigm shift away from the traditional home-ownership mindset have led the local apartment market out of the recession doldrums. Charlotte, the largest city in the fastest-growing state in the Southeast, has experienced more than 35 percent population growth since 2000. The fear of job losses in the financial sector has proven to be unfounded as financial service firms employ the same number in the region as the pre-recession era. The region also now leads the state in the pace of employment growth, the historical driver of strong apartment fundamentals. Notable job growth, coupled with favorable demographic trends, will continue to drive Charlotte’s recovery.
— Jordan McCarley is an investment advisor for Southeast Apartment Partners. He is based in the
firm’s Charlotte office.