Graphic: Where did rent prices change the most in North Carolina from April to May?
North Carolina’s housing market is getting a nice boost from strong population and job growth. Despite a surge in apartment development in major metros such as Charlotte and Raleigh-Durham, rents are expected to rise higher in the near term.
The main story in North Carolina is a booming economy that appears to be firing on all cylinders. Over the past 12 months through March the state added 128,774 new jobs, according to the Bureau of Labor Statistics. Although the state has a diverse mix of businesses from auto manufacturing to food processing, the state is recognized nationally and internationally as a hub for technology and financial services.
The state’s strong education infrastructure has been a key component in fueling its economic growth. North Carolina is home to 53 colleges and universities, including three Tier 1 research universities at North Carolina State University, Duke University in Durham and the University of North Carolina at Chapel Hill. The University of North Carolina system spans 17 campuses throughout the state, and private schools Wake Forest University and Davidson College also are located here.
Charlotte and Raleigh-Durham are the two largest cities in the state and are clear hubs when it comes to business and population growth, not to mention the sizable student populations. Charlotte, the state’s largest city, is home to the second-largest banking center in the United States. Raleigh-Durham’s Research Triangle Park is recognized as the largest research park in the U.S. with more than 200 companies that employ some 50,000 people.
Apartment developers have been busy in Charlotte. Builders are expected to complete 6,000 units this year, which represents a 3.8% expansion of the current inventory. That activity follows on the heels of a strong year in 2005 where 5,900 new units were built, according to Marcus & Millichap. In particular, there have been a number of projects that were completed or are still underway in Uptown and along the I-485 corridor. The expansion of the Blue Line Lynx light rail also is expected to spark more apartment development activity in the future.
For example, there is a new apartment project planned northeast of Uptown in the Plaza Midwood neighborhood. Developer CampusWorks is proposing a 349-unit project that would include between 8,000 and 10,000 square feet of ground floor retail space. The company completed the purchase of the 4.3-acre site last fall.
Development activity is expected to push the overall vacancy rate slightly higher this year. Although vacancy rates dropped 60 basis points last year to 4.4%, Marcus & Millichap is predicting that vacancies will end the year at 4.5%. Rent growth continues to outpace the national average. Charlotte saw strong rent growth last year at 7.5% and Marcus & Millichap is predicting more rent growth ahead at rate of 5.5% for 2016. According to ABODO, average rents for a one-bedroom in Charlotte increased 1% from April 1 to May 1 to average $1,147.
The Research Triangle is seeing a healthy pace of new apartment construction with approximately 3,800 units completed in 2015 and another 3,800 units under construction, according to a fourth quarter report by Multi Housing Advisors. Atlanta-based Peak Campus recently acquired a 2.5-acre property on Hillsborough Street in Raleigh with plans to redevelop it as a new student housing apartment community that will have 150 units and nearly 490 beds.
Vacancy rates decreased about 60 basis points to end the year at 6.1%. However, rents remain high in the market, averaging $1,000 or more for properties built after 1990. Rents are expected to rise steadily at about 2.9% through 2020. According to ABODO, Raleigh recorded the biggest month-over-month increase of 7% on one-bedroom rents to average $1,001, while Durham also saw rents rise 3% to average $1,003.
Overall, the student housing market is strong throughout the state, including locations in secondary and tertiary markets such as Wilmington and Chapel Hill. According to ABODO, average rents on one-bedroom units rose 2% statewide in April. Some of those rents have jumped notably higher on a year-over-year basis. UNC Greensboro, for example, reported a 10.6% annual increase to average $696 on one-bedroom units as of May 1, while UNC Wilmington reported an annual increase of 5.4% to average $893, according to ABODO.
In Chapel Hill, rents rose 2% in April despite the recent addition of two new high-end student housing projects. Both the 604-bed Lux at Central Park apartments and the 271-bed Shortbread Lofts apartments opened to students in fall 2014. In addition, the Chapel Hill town council recently approved plans for a new student housing redevelopment on Hillsborough Street near the intersection of Martin Luther King Jr. Parkway. Plans call for razing the existing 1960s-era apartments near downtown to make way for Grove Park, a new 346-unit (850-bed) student apartment project that is scheduled for completion in 2018.
Although the new construction will bring new choices to the market for renters and increased competition for landlords, the job and population growth that is occurring is expected to help absorb that new supply. In fact, some industry forecasts predict that rent growth will continue in some markets through 2020.
*Image courtesy of Wikipedia