The Charlotte economy has created jobs at a faster rate than the national average throughout this cycle. With 34,900 new jobs over the last 12 months and more than 110,000 over the last three years, the regional job market has created a new demand for the luxury multifamily inventory throughout infill and select suburban submarkets.
Four of the MSA’s top five employers — Wells Fargo, Bank of America, Carolinas HealthCare System and Novant Health — each have a combined 1,000-plus job openings in Charlotte, while AXA, Red Ventures, Dimensional Fund Advisors and CompuCom have begun major expansions across the metro area.
John Heimburger, ARA Newmark
This has created a need for additional multifamily inventory, which has expanded by 7,700 units over the last 12 months, while absorption was just shy of 7,000. The modest downtick in occupancy was more than offset by a 4 percent same-store rent growth (30 basis points higher than the five-year trailing average of 3.7 percent).
Two marquee high-rise projects are nearing completion in the central business district’s Third Ward: Greystar’s Ascent and Childress Klein’s Museum Tower. The early returns show unprecedented per square foot rents for the metro area. In most infill locations, developers are offering one month free rent upfront to new residents during lease-up. These concessions taper off as leasing progresses, the full scope of amenities are delivered and stabilization approaches. Renewals on lease-up assets are broadly concession-free, while stabilized properties are only offering concessions in special situations.
While rent growth has slowed in the Class A space over the past 12 months, fundamentals in Class B and C product remain strong. A combination of interior renovation campaigns on older assets and demolition of infill Class C product for higher density, mixed-use redevelopment has created a shortage of available, price-sensitive product.
Over the past three years, the market has shown terrific operational performance in both the Class B and C spaces with average occupancy exceeding 96 percent in addition to 20 percent cumulative rent growth.
Supply concerns in certain submarkets — Uptown, South End, NoDa and Ballantyne — have been tempered by difficulty in capitalizing new ground-up projects. Several proposed developments have been tabled due to increased construction costs, a challenging lending environment and intensifying community antipathy toward gentrification of lower income neighborhoods.
The 2017-18 delivery schedule looked to be daunting six to 12 months ago, but municipal administrative capacity and pervasive code changes have elongated the pre-development period and increased developer pursuit costs. Delays in construction execution attributable to capacity limits for quality subcontractors, budget overruns due to cost spikes and volatile winter weather have wreaked havoc on project schedules and smoothed out the delivery of new inventory.
The Lynx Blue Line successes over the past decade have served as the catalyst for explosive growth in the South End corridor and in Uptown Charlotte. Since then, South End’s population has tripled. An initial wave of development was fueled not only by the rail line, but also transit-oriented development (TOD) zoning and attractive Brownfield tax abatement. The result was several multifamily assets delivered from the 277 inner loop to the New Bern light rail station two miles south.
This growth has fueled new office and retail development and several restaurants, breweries and boutique shops eager to tap into the still expanding residential base. Edens is partnering with Crescent Communities to remake Atherton Mill into a food- and fashion-focused retail hub with ultra-high-end apartments at the epicenter of South End.
Expectations for expanded growth are high as the next chapter of the light rail line will commence later in the year as the Blue Line extension opens from Uptown, through the NoDa corridor and ending on campus at the University of Charlotte.
As with South End, there has been a push by developers to secure sites with “beachfront” access to the rail line and platforms, particularly in the burgeoning NoDa district. The Optimist Park and NoDa submarket development is underway with three multifamily projects from national developers — Crescent NoDa (Crescent Communities), Parkwood Station (NRP Group) and 25th Street Station (Wood Partners). Trammell Crow Residential is also working on the adjacent Tompkins Hall adaptive reuse project, which is set to close in the next quarter.
As with the early part of the cycle in South End, the residential base will deliver with the promise of additional supporting amenities and services to follow. With UNC Charlotte serving as the northern bookend to this stretch of the light rail, nearly 25,000 students will now have more immediate and convenient access into the NoDa corridor and Uptown, which should further fuel renter demand in these submarkets and provide much needed connectivity along the corridor.
— By John Heimburger, Executive Managing Director, ARA Newmark. This article originally appeared in the June 2017 issue of Southeast Real Estate Business.