Raleigh Multi Family Real Estate Investing

Why is Raleigh Multi Family Real Estate a Great Investment?

Raleigh, North Carolina's multifamily real estate environment boasts several positive features. Overall, Raleigh's multifamily real estate environment offers a combination of economic growth, population expansion, development opportunities, and quality of life factors that make it an attractive market for investors.

Understanding the Raleigh Multi-Family Market Statistically

• Economic Growth: Raleigh is part of the Research Triangle region, known for its strong and diverse economy driven by technology, healthcare, education, and research sectors. This economic stability fosters job growth and attracts a steady influx of residents, driving demand for multifamily housing.

• Population Growth: Raleigh has experienced significant population growth in recent years, fueled by factors such as job opportunities, quality of life, and a vibrant cultural scene. This population expansion contributes to the demand for rental housing, particularly in multifamily properties.

• Thriving Rental Market: Raleigh's rental market is robust, with steady demand for apartments and other multifamily properties. Factors such as a large student population, young professionals, and families seeking rental options contribute to the strength of the rental market in the city.

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

• Proximity to Universities and Research Institutions: Raleigh is home to several universities and research institutions, including North Carolina State University, which attract students, faculty, and researchers to the area. The presence of these institutions creates a steady demand for rental housing near campus and contributes to the overall stability of the multifamily real estate market.

• Quality of Life: Raleigh offers a high quality of life with its vibrant cultural scene, recreational amenities, and relatively affordable cost of living compared to other major cities. These factors make the city attractive to renters, supporting occupancy rates and rental growth in multifamily properties.

• Strong Job Market: Raleigh's diverse economy and status as a technology and research hub contribute to a strong job market with low unemployment rates. The availability of job opportunities attracts young professionals and families to the area, driving demand for rental housing.

• Transportation Infrastructure: Raleigh 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.

   

Current Market Overview (Q1 24)

As of 24Q1, demand has been positive for four quarters in a row, and net absorption has totaled 4,300 units over the past year, which is above the market's historical annual average. This is a contrast from the end of 2022, when the market experienced two quarters in a row of negative absorption.

Most Raleigh submarkets have experienced high demand over the past year, including North Cary/Morrisville, while absorption has been low in Franklin County.

While demand has been higher than normal, the level of new supply has been even more heightened. Developers delivered 9,200 new units in Raleigh over the past 12 months, more than double Raleigh's historical average.

Because new supply has outpaced demand, vacancy has increased to 12.5%, a record high for the market. A year ago, vacancies were 9.5%, and the market's recent low was 5% in 2021. The trends in Raleigh are similar to, but more pronounced than, the dynamics across the U.S., where vacancy has not risen as quickly.

Raleigh's economy is anchored by the technology and life sciences industries, and it is one of the most affluent markets in the Southeast. Population continues to grow by over 2% annually, making it the third-fastest growing large metropolitan area in the U.S., behind only Austin and Orlando. The influx of new residents increases demand for the multifamily market, and absorption will remain positive.

Raleigh's construction pipeline has declined slightly from recent record highs, but there are still 12,000 units currently under construction in the market. Among major U.S. markets, Raleigh is in the top five for units under construction as a share of inventory, at 9.6%. 

Rent growth has been negative in Raleigh. Rents here have changed -3.1% over the past 12 months, compared to 2.5% rent growth a year ago. Rents in Raleigh average $1,520/month, compared to $1,680/month nationally.

Multifamily sales volume has totaled $1.1 billion over the past 12 months, which is significantly below the market's 10-year annual average, but the city did experience a notable increase in quarterly sales volume in 23Q3, with the highest quarterly transaction since the middle of 2022 due to six major transactions of over $70 million each. All six sales were for properties that were built in 2010 or later and that contained at least 275 units. Five of the six sales were to companies based outside the state.

Rent and Vacancy

Rents in Raleigh have been on the decline in recent months. Asking rents have changed -3.1% over the past 12 months. A year ago, rent growth in Raleigh was 2.5%.

Rents for 4 & 5 Star properties have experienced the steepest declines, with a 4.0% decline over the past year, while 3 Star rents have declined 2.0% over the same time period.

Historically, Raleigh's well-educated labor force, much of which is employed in the tech or life science industries and earns above-average wages, has driven rent growth. More recently, the high level of new supply in the market has exceeded demand, causing vacancy rates to rise.

Raleigh's construction pipeline remains robust, with 12,000 units under construction. The new supply will likely exceed demand and keep rent growth flat for the next few quarters.

Rents in Raleigh average $1,520/month, less than the national average of $1,680/month. New construction commands higher prices, and rents in established suburbs are more expensive than the market average. Properties rated 4 & 5 Star average $1,630/month and average well above $2,000/month in the most in-demand submarkets.

Many of these higher-priced developments are located outside downtown, creating an unusual situation in Raleigh, where suburban properties are often more expensive than their urban counterparts. Rents in the suburbs of Cary and Morrisville average about $1,600/month, whereas rents in Downtown Raleigh average under $1,525/month.

Raleigh Garden Style Apartment Portfolio Properties