Charlotte Multi Family Real Estate Investing

Why is Charlotte Multi Family Real Estate a Great Investment?

Charlotte's multifamily real estate environment offers a compelling combination of economic growth, population expansion, affordability, and investment opportunities.

Understanding the Charlotte Multi-Family Market Statistically

• Economic Growth: Charlotte is a rapidly growing city with a diverse economy, including finance, technology, healthcare, and manufacturing sectors. This economic stability attracts a steady influx of residents, driving demand for multifamily housing.

• Population Growth: Charlotte's population has been steadily increasing over the years, fueled by both domestic migration and international immigration. This population growth contributes to the demand for rental housing, particularly in multifamily properties.

• Strong Job Market: Charlotte is home to several Fortune 500 companies and has a robust job market. Low unemployment rates and a favorable business climate attract young professionals and families seeking employment opportunities, further driving demand for rental housing.

• Affordability: Compared to many other major cities in the United States, Charlotte offers relatively affordable living costs, including housing. This affordability makes multifamily real estate investments attractive to both renters and investors.

• Development Opportunities: Charlotte's ongoing urban development and revitalization projects present ample opportunities for investing in multifamily properties. Developers continue to build new apartment complexes and mixed-use developments to meet the growing demand for housing.

• Transportation Infrastructure: Charlotte has a well-developed transportation infrastructure, including highways, public transportation, and an international airport. Access to transportation hubs enhances the desirability of multifamily properties, particularly those located near transit nodes.

• Quality of Life: Charlotte offers a high quality of life with its diverse neighborhoods, cultural attractions, recreational amenities, and favorable climate. These factors contribute to the city's appeal to renters and support stable occupancy rates in multifamily properties.

• Strong Rental Market Fundamentals: Charlotte's multifamily rental market benefits from strong fundamentals, including low vacancy rates, steady rent growth, and favorable demographic trends. These factors contribute to the resilience of multifamily investments in the region.

Current Market Overview (Q1 24)

Demand for Charlotte apartments has proven resilient as of early 2024. However, leasing volume has yet to match a record wave of new supply, both recently delivered and under construction, leading to higher vacancies and negative rent growth.

Population growth has followed job growth to the Carolinas' largest metro, boosting demand for multifamily housing. Net absorption returned to pre-pandemic norms in 2023, after two volatile years. The market swung from positive absorption double the five-year pre-pandemic average in 2021 to its first quarter of negative absorption in over a decade in 22Q4.

At the same time, the flurry of construction sparked by the high-demand, low-interest-rate environment at the height of the coronavirus pandemic began to deliver in earnest in 2023. That heightened competition for renters, particularly among the newest and most expensive units. A record 13,400 units delivered in 2023, 25% higher than any prior year on record for the market. And even more units are set to open in 2024.

With supply outpacing demand, vacancy rates have set new highs, rising into the double digits, while rents have begun to fall. Asking rents fell steeply in high-growth urban neighborhoods such as South End, NoDa, and Belmont, where developers have been busy delivering high rises with high-end amenities surrounding the recently extended LYNX Blue Line. By contrast, slowergrowth, moderate-income suburbs and exurbs like Rowan County, remain the few submarkets still posting positive annual rent gains thanks to limited competitive pressure from newer units.

Supply pressure won't ease in Charlotte in 2024. About 29,000 units are underway, more than 14,000 of which are set to deliver this year. That will expand the market's inventory by 13.4%, giving Charlotte the largest construction pipeline as a share of existing inventory in the United States, just ahead of Miami and Austin.

While continued deliveries are likely to keep rent growth muted through 2024, shifts in the lending environment could lay the groundwork for a return to rent growth in the medium term. Rising costs of capital and tougher lending requirements have slowed deal-making and construction lending. As a result, groundbreakings fell by more than 40% in 2023. Fewer groundbreakings today will mean fewer deliveries by late 2025. While slower job growth could soften demand in the market in the near term, absorption is projected to remain positive, and the pause in new supply pressure will likely return rent growth to positive territory by 2026.

Rent and Vacancy

Charlotte is in an historic expansion of apartment inventory. As competition for renters has heated up, rents have cooled. The average asking rent has fallen -2.2%, year over year. Overall, rents have fallen 3.5% since peaking at $1.67/SF ($1,616/month) in 22Q2. At $1,560/month, rents in Charlotte are 7% less than the national average, a discount that longer-term rent growth has narrowed from more than 10% just five years ago. Even with this pullback, rents have grown 24% cumulatively since 2019. Higher-end 4 & 5 Star units offer deeper discounts. While the best units in the most upscale urban neighborhoods, such as South Park, South End, and Uptown, command more than $2,000/month, 4 & 5 Star rents average 18% lower than the national average at $1,710/month. Higher-end properties have also seen the steepest declines in rent, down -2.9% annually and more than -5% since peaking in mid-2022. Competition from new supply, more than 75% of which is in the 4 & 5 Star category, has also increased concession offerings and higher-end units commonly offer as much as one month to 6 weeks of free rent. With less new construction to contend with, rent growth in middle-income units has held up better but not completely. Softening of 3 Star rents is especially prevalent in high-supply submarkets where lower rent spreads between 4 & 5 Star properties and 3 Star properties may allow renters to take advantage of rising concessions to trade up to higher-end properties. In the University submarket, for example, 3 Star rents average only 12% less than 4 & 5 Star rents, and rents in both classes have declined more than -2% year over year. Lack of supply has kept rents rising in the least expensive 1 & 2 Star units, and exurban submarkets such as Rowan County and Chester County, where these lower-cost units are concentrated, are among the only submarkets posting continued rent growth. However, inflation has led to lower household formation among this cost-constrained demographic group, and negative absorption has slowed rent growth to 1.6%, year over year, in this property slice. Continued supply additions will likely keep rents flat throughout 2024. However, declining construction starts will mean fewer deliveries by late 2025, relieving supply pressure on the market and returning rents to growth in the longer term.

Charlotte Garden Style Apartment Portfolio Properties