Charlotte, N.C.—The outlook for the Charlotte apartment market is set to remain positive and dynamic despite an expected decline in occupancy rates and concerns regarding payroll cuts in the finance sector, concludes Marcus & Millichap’s latest report. Although Charlotte has dropped one spot to number 30 in Marcus & Millichap’s national apartment index ranking and there is an expected 70 basis point increase in vacancies within Metrolina, the market remains strong. The vacancy uptick to 5.6 percent will be the result of supply outpacing demand, but the ratio will continue to remain healthy, with strong demand. 2014’s 70 basis point increase is almost the double of last year’s 0.4 percent.
2014 will bring 5,500 new units on the Charlotte apartment market, a 19.5 percent increase from last year’s 4,600 new units. The majority of new supply is located in the Uptown/South End submarket and as a result will lift vacancies both within this submarket and by enticing away renters from other submarkets.
Among the new apartment projects expected to open this year is 1100 South Boulevard, a 331-unit upscale apartment community being developed in South End by a joint venture between USAA Real Estate Co. and Cambridge Development. The project is expected to start delivering units in November (details here). A further 5,500 units will remain under construction throughout Charlotte, such as Presidio, the 298-unit mid-rise being developed in South End, Charlotte’s fastest growing apartment submarket. Presidio is the result of a partnership between Canyon Capital Realty Advisors and NRP Group (project details here).
Rent growth will be somewhat more tempered than the previous year’s 6 percent in part due to the growing supply. Leasing incentives offered by new developments will also dampen growth. However, rents will increase 3.5 percent to an average $911 per month.
Marcus & Millichap’s report brings to attention another factor contributing to the market’s positive outlook: the costly single-family market, characterized by rising prices and inflating interest rates. By opposition, the multifamily market continues to experience low interest rates, which will lead to an escalation in sales, especially in Class B and Class C assets, where cap rates range between 7 and 8 percent. Competitive lending paired with the shrinking price gap between buyers and sellers will also contribute to a surge in sales activity.
Charlotte’s growing job market will continue to offer ample employment opportunities to the local job market, while also attracting workers from other areas, increasing both the tenant base and its buying power. The employment pool is expected to grow by 2.5 percent or 22,300 jobs, a significant part of which will be generated by the professional service and retail industries.
Charts courtesy of Marcus & Millichap