Charlotte Multifamily: Still Robust But Facing A Possible Slowdown
There will not be a slump in Charlotte multifamily any time soon, even in new development or investment sales, speakers at Bisnow's Charlotte Multifamily Growth & Expansion event said on Thursday.
But a slowdown is possible, even likely, for Class-A product — which now includes some amenities hardly dreamed of before this cycle. Top-end development that manages to break ground in the near future is going to have to compete very hard on amenities.
Last year was stellar for the Charlotte apartment market, the development panelists agreed. Apartment owners got healthy increases in rents marketwide (about 7% last year), and developers were able to get financing for new properties, though that slowed toward the end of the year, with the market supported by robust job growth in the region.
This cannot last, though no one is sure exactly how the momentum is going to change. More than one speaker predicted a softening of the market, for a variety of reasons.
For developers, it will be land and construction prices, and an increasing reluctance on the part of lenders to finance Class-A in particular. For owners, higher rents will be harder to sustain. There are a lot of new jobs in the market, but that will not sustain massive rent growth as it has in recent years because wage growth still lags.
Even so, renters now expect much more in the way of amenities than ever before. As more supply comes online, owners need to offer those kinds of amenities to be competitive, such as rooftop pools or massage rooms or workout space with high-end equipment in common areas, and foyers and laundry rooms (as opposed to closets) in the units.
Many renters are still willing to pay higher rents in amenity-rich spaces in good locations, the market trend speakers said. Baby Boomers want to rent too, because they want less space but also a higher quality of life. These kinds of renters will continue to fuel the demand for new rental properties.
However, Charlotte — like many cites — has an affordability problem when it comes to its housing stock. Rents are not high here compared to some markets, but wages are not as high either. There is a shortage of both affordable and workforce housing in Charlotte, and dealing with that will be problematic, as higher land costs and construction costs persist.
Demand for workforce housing will probably drive suburban development, the speakers said, since land costs are less. It will also likely drive redevelopment of 1980s product in some urban infill locations, which can work as workforce housing in some circumstances.
South End is the most dynamic market in Charlotte, with a lot of desirable investment product, according to the investment panelists, though concessions are creeping in. Well-positioned, well-amenitized properties there are still competitive with Downtown, and with for-sale housing.
The area along the Blue Line Extension is also very attractive, and it will drive rents when the line comes in. Developers are having difficulty finding sites near the line, and investors will pay more than in other submarkets, but it will probably be worth the additional investment.
The neighborhood is a major selling point for renters, who are looking for more authentic experiences in a walkable distance. That will be a distinct advantage for apartments along the Blue Line Extension.