Charlotte's recovery has been so strong that all property types are doing well, the speakers at our 5th Annual Charlotte State of the Market this week agreed. But that naturally raises the question—how long can the party last?
Quite a while longer, our speakers assert. Charlotte market fundamentals are strong during this cycle—driving consistent demand for apartments, office space, industrial product and even retail—without many symptoms of a bubble, even in the multifamily space. Demand is being driven by employment growth. This year, North Carolina will create 75,000 new jobs—30,000 of which will be in greater Charlotte, across a healthy range of industries.
Charlotte Mayor Pro Tem Michael Barnes, who chairs the City Council's Economic Development and Global Competitiveness Committee, stressed the health of the Charlotte market during his opening remarks. People and companies are responding to the opportunities by relocating here, he says. Both the private and public sectors are stepping up to the plate to make the city a better place, with developers addressing a shortage of Class-A office space, and the city pursuing an $816M capital improvement plan for infrastructure, public safety and green space.
Gingko Residential CEO Phil Payne and Spectrum Residential president Steve McClure. More specifically, how long can multifamily's strong run continue? Our speakers say that the cycle's been quite long already—the market's been "in the seventh inning for about three years now," as one panelist put it, but "there are going to be extra innings." It isn't just Millennials any more who are driving demand. Empty-nester Baby Boomers are leaning toward apartment living more than ever, and even in the South End, where a lot of properties are being developed, there's a lot of absorption.
Snapped: Crescent Communities VP Ned Austin, Selwyn Property Group partner Grey Poole and Wells Fargo SVP-real estate division John Saclarides. The influence of Millennials isn't just a phenomenon of major urban areas on the coasts any more, our speakers explain. In markets like Charlotte, their preferences in living and working are shaping projects more than ever. They don't mind smaller apartment units, but they want them to be efficient, well-located space—cool space. In their workspace, anything that supports their connectivity is a winner, and they want engagement with their professional peers, not separation. They still go shopping, and want healthful options in food, coffee and fitness, in unique settings.
JE Dunn Construction SVP Toby Bartlett, CF Lane COO Melanie Gersper and CohnReznick partner Cristi Lewis, who moderated. One problem faced by Charlotte's development community is common to other places: a lack of skilled construction workers across all trades. The shortage is driving up costs, and lengthening the time it takes to build. It's also hard to find experienced, high-quality property managers. One reason is that properties are much more technically sophisticated than they used to be, but it's also true that management fees have fallen. What's going to happen when you turn your multimillion-dollar asset to someone underpaid and inexperienced, one panelist asked rhetorically.
Investor interest in the Charlotte market is high, our panelists say, despite the fact that in some submarkets, cap rates are as low as the upper 4s. The region's job and population growth make long-term holds a good strategy, but also if you have property to sell, now's a great time to be a seller, and there are still a lot of deals to be done. Demand is strong from a wide spectrum of buyers, including institutions, REITs and high-net-worth individuals.
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