Triangle Apartment Market is Top Destination for Institutional Capital

The Raleigh-Durham-Chapel Hill market, known as the Triangle, has long been viewed as a market favorable for investors, due to very strong demand metrics. The state capital’s thriving economy and excellent demand drivers have made it a prime renter destination and the new darling for yield-chasing institutional investors. A skilled workforce, transitional student renter pool and national trend of millennials “de-nesting” have continued to keep the apartment market strong and attract institutional investors such as Redwood Capital Group, Guardian Life Insurance and Heitman.

As one of the most active firms in the Carolinas, Cassidy Turley has witnessed the transition firsthand as the Triangle has transformed from a regional player into a national powerhouse that has attracted some of the world’s most savvy institutional groups.
According to Reis, the apartment vacancy rate in the third quarter of 2013 stood at 3.9 percent, well below the greater South Atlantic region’s average of 4.9 percent. Furthermore, the vacancy rate has actually decreased 20 basis points since last quarter, demonstrating the strong momentum of the local market and the appeal to institutional investors. Contributing factors include:
• A 20 percent population growth in the Triangle over the last decade
• The area boasts a total student population of nearly 90,000 being home to Duke University and North Carolina Central University in Durham; University of North Carolina in Chapel Hill; and North Carolina State University in Raleigh (This not only provides a deep pool of ideal renters, but also allows residents access to world-class healthcare, as both Duke and UNC contribute to the region’s major hospitals and medical centers.)
• Corporations including IBM, MetLife, GlaxoSmithKline, SAS Institute, Citrix and Red Hat have been drawn to the area due to the excellent talent pool and exceptional quality of life.
In addition, the state of North Carolina recently approved an update to its tax plan, which included implementing a flat income tax rate of 5.75 percent, as well as reducing the corporate tax rate from 6.9 percent to 5 percent. This is just one reason Forbes recently named Raleigh among the “10 Up & Coming Cities for Entrepreneurs”, as well as one of the fastest growing cities in 2012.
The question is, “What does this mean for a multifamily market that has a short-term construction pipeline of 12,794 market-rate units? Will institutional investors still flock to the Triangle?”
The answer is complex. The short-term supply may create a slight uptick in the historically below average market fundamentals; however, on a long-term horizon, the Triangle market will continue to see strong growth.
Not all of the 12,794 units will come to fruition. While the majority of those units are considered planned, only a handful of developments have actually received its permits. Also, the bulk of the construction activity is taking place in three submarkets; North Hills, northeast Raleigh and downtown. The new projects will create an impact on the market by providing renters with newer, Class A properties boasting an array of community amenities. This market fundamental will bolster an increase in renters by choice (the typical occupants of Class A properties) and further drive rent growth.
Money Magazine recently named Raleigh one of the top five places to retire in the nation, demonstrating a potential new feeder for the area’s renter pool — the aging baby boomers. If developers can tap into this market, it could help them hedge against the pipeline.
The recent influx of institutional activity including Heitman’s acquisition of the 276-unit Jamison at Brier Creek in August and AEW’s acquisition of the 328-unit Artisan at Brightleaf serve as excellent examples to other institutional buyers looking to enter the Triangle market.
The Triangle is proving to be a market that will continue to outperform the majority of the South Atlantic localities and continue to catch the eyes of institutional investors from around the world that are looking for stable cash flows and above average yields. With asking rents forecasted to increase on average 2.9 percent per year during the next five years, the Triangle is positioned to perform well into the future.
— Christopher Doerr, managing director, Cassidy Turley
Content Partners
‣ Arbor Realty Trust
‣ Bohler
‣ Lee & Associates
‣ Lument
‣ NAI Global
‣ Northmarq
‣ Pavlov Media
‣ Walker & Dunlop

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