By Laura Calugar
North Carolina and South Carolina are expected to continue to attract investors in 2018, as supply and demand fundamentals have been very favorable for operations, especially in the Triangle. Charlotte is also performing well, although the pending countywide tax revaluation in 2019 could make tax valuations difficult to predict at this time. In search of higher yields and less supply pressure, the region’s secondary and tertiary markets should also see robust transaction activity, as more capital flows into these areas.
Multi-Housing News spoke with Dean Smith, vice chairman of ARA Newmark, who predicts a steady increase in international capital into the Carolinas via domestic sponsors. He also expects there will be tremendous demand from private 1031 capital, coming off a robust transaction environment in 2017. Moreover, many high-net-worth families are becoming aggressive, as they look to acquire high-quality, long-term-hold products.
Charlotte’s Southwest, Fort Mill, Indian Trail, Rock Hill, SouthEnd and Plaza Midwood submarkets should certainly be on investors’ radar due to their incredible momentum, he said, adding the Triangle will continue to be a hot market, with downtown Raleigh, Cary and south Durham particularly in focus. In this interview, Smith discusses which other Carolinas markets will perform well this year, as well as what the inclusion of Raleigh on Amazon’s recently announced could mean for the city.
Which Carolinas secondary and tertiary markets could attract most capital in 2018 and why?
Dean Smith: Charleston and the Greenville/Spartanburg markets will continue to see their ascent in the ranking of mid-tier markets. While the last couple of years saw unprecedented deliveries in these markets, 2018 should see relative equilibrium in supply and demand. These markets are uniquely tied with the port of Charleston, the inland port in the upstate, automotive manufacturing in both markets, and the major transportation/logistics operations along the interstates 95 and 85 corridors, all serving to fuel job growth. Institutional investors are taking note and will continue to see these markets as highly desirable.
Winston-Salem and Greensboro have seen a resurgence in recent years, as developers have returned to the downtown submarkets, transforming unique existing spaces into vibrant housing options that did not exist before. Winston-Salem’s strong push into the biomed space is attracting a young educated workforce seeking this type of housing.
As for smaller tertiary markets—from the coast to the mountains—Wilmington, N.C., and Asheville, N.C., are interesting markets to watch. Both are attracting the Millennial renter, who is moving to these towns due to the young vibe they possess. These newcomers are figuring out where they will work after they get there. Wilmington is a rapidly growing port city, with a vibrant downtown along the Cape Fear River, while also having some of the best beaches on the East Coast. Very strong demographics—on par with Charleston and Savannah—have sparked investor and developer interest, and we expect this trend to continue. Similarly, Asheville has a very young, hip downtown scene, with outstanding restaurants, craft breweries and arts scene. Employers have taken note and are establishing offices in these towns, driving renter demand.
How much will active adult and empty nester demand influence future development in the Carolinas?
Smith: While job growth has always been the benchmark for rental demand, population growth in the Carolinas has been a major factor driving demand in recent years, as a growing number of retirees and empty nesters are migrating into the markets, either looking to relocate close to where their adult children now live and work, or seeking the attractive lifestyle and relative affordability offered in markets like Charleston, S.C., and Wilmington, N.C., on the coast, or Greenville, S.C., or Asheville, N.C., in the mountains. Surprisingly, developers of urban infill mid- and high-rise product, who were anticipating strong Millennial demand, are seeing an exceeding number of these empty nesters populating their rent rolls. This demand causes developers to rethink their unit mixes (larger floorplans, with less one-bedroom units) and amenities to make sure they continue to capture these renters. We expect to see continued growth in the development of active adult communities as well—a relatively new concept that is just now seeing the first deliveries of product into these markets.
Recently, Amazon announced that Raleigh is on the shortlist for the giant’s second headquarters. What are the metro’s chances and how much would the company’s $5 billion investment impact the development of the city?
Smith: The Amazon announcement is certainly exciting for the Raleigh MSA and really serves as further validation of its status as a premier “knowledge market.” While the quality of jobs and average salaries in the MSA’s existing industries continue to retain much of the highly educated graduates from the region’s high-profile universities, having Amazon in the market would further strengthen this. Attracting and retaining a high percentage of top-tier students and talented professionals to the market is the backbone to why the Triangle market has been so successful. It truly is a desirable investment market for all real estate product types.
As for multifamily specifically, Amazon and the nature of its workforce would continue to drive development into urban corridors, such as downtown Durham and Raleigh, seeking creative spaces with amenity-rich neighborhoods. Furthermore, due to the scale Amazon would bring and the likely positioning around the Research Triangle Park, higher density development would likely take shape in what is primarily a suburban low-density environment, generating a dramatic shift in the center of the MSA.
Image courtesy of ARA Newmark