By Lisa Narducci-Nix of Drucker + Falk
As a third-party manager of more than 7,000 multifamily units in the Raleigh-Durham metropolitan area, the question we’ve been asked the most lately is, “What do you see for 2024 in terms of rent growth and occupancy?” Alongside other concerning variables such as liability insurance and payroll, rent and occupancy performance seem to be front and center in most conversations.
Rents have notably cooled from the unprecedented growth enjoyed most of 2022. According to a multifamily market report on Raleigh by Yardi Matrix, rent growth was negative 0.2 percent in third-quarter 2023 compared to the second quarter and down 1.5 percent on a year-over-year basis.
We expect that those numbers represent a market correction of sorts from the unsustainable growth in 2022 as employment and population growth remain strong in the Raleigh-Durham market. In recent headlines, Apple is planning to begin its first phase of its 281-acre office campus, which will add 3,000 jobs at full build-out, and VinFast will begin developing its $4 billion electric vehicle plant in nearby Chatham County in 2025.
Additionally, the U.S. Census Bureau found that the population of the Raleigh-Durham MSA grew by 2 percent in 2021 alone, making the metro one of the fastest growing in the country.
Within Drucker + Falk’s Raleigh-Durham portfolio, which varies in terms of product type around the metro area, we project modest but consistent rent growth for 2024.
Supply-demand
Additionally, we anticipate vacancy to average 93 to 94 percent in our portfolio for 2024, which is a slight improvement from current market conditions in the Raleigh-Durham market. Vacancy is currently around 8 to 9 percent on stabilized inventory, which is fairly consistent with historical averages this time of year, especially the years before the COVID-19 pandemic.
According to a recently released RentCafé report, the Triangle had the most competitive rental market in the Southeast for 2023, averaging eight renters per vacant apartment. The apartment listing and research service found that Raleigh-Durham was more competitive than Charlotte and Atlanta in terms of demand, ranking 36 out of 139 “large” metros.
We expect demand to remain elevated throughout the year, which is paramount as the metro has added so much supply in recent months. According to Yardi Matrix, the metro added 5,167 units through the first three quarters of 2023. This figure already eclipses the entire 2022 supply gain of 3,526 units.
Nationwide, Raleigh-Durham is currently in the top 10 as far as units under construction as a share of inventory. Currently there are about 14,000 units under construction, which equates to 11 percent of total inventory. AvalonBay Communities is planning a 930-unit development in Durham that will break ground this year.
Most of the development is concentrated in the downtown submarkets as these are close to population centers, as well as outlying suburbs like Cary, Apex, Clayton and Fuquay-Varina. Recently delivered properties in the MSA include the 216-unit Madison Wakefield and the 344-Unit Prose New Hope in Raleigh, as well as the 263-unit Beckon and the 420-unit Camden Durham in downtown Durham.
Fly in the ointment
One of the unfortunate realities that multifamily owners and operators have to contend with in growing markets is renter fraud, and Raleigh-Durham is no exception. Application fraud had been steadily on the increase over the past few years. However, Raleigh-Durham has not been one of the most dominant areas we have experienced this. Charlotte, for example, has seen an overall higher number.
Multifamily operators have been proactively implementing programs such as Snaptt to combat the rising number of fraudulent applications. Overall, these third-party products have had a positive impact for our properties and clients.
— Lisa Narducci-Nix, CAM, director of business and property development, Drucker + Falk. This article was originally published in the January 2024 issue of Southeast Real Estate Business.