Real estate analysts say Charlotte’s apartment building boom could oversaturate the rental market this year, possibly prompting free-rent offers and other concessions as leasing competition intensifies.
Developers, however, say the long-term outlook for the Charlotte apartment market remains bright.
Much of the new apartment growth is coming in and near uptown Charlotte, in areas such as the South End, SouthPark, NoDa and Elizabeth neighborhoods, according to research firm Real Data, which tracks the multifamily rental market.
In its most recent twice-yearly report on the Charlotte market, Real Data in September characterized the city’s apartment development pipeline as “very active,” with more than 8,100 units under construction and nearly 12,000 more proposed.
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Supply is expected to exceed demand within a year, the report states.
“You can expect to see communities of all ages offering one to three months rent-free in the months to come, in reaction to increased competition,” Real Data analyst Engle Addington wrote in an email to the Observer last week.
Frank Warren, a real estate analyst with engineering and land-planning firm Kimley-Horn, said Charlotte is building more apartments than can typically be absorbed in a year. But he added: “I am fairly convinced demand is going to remain strong and any oversupply will be of a limited duration.”
Developers believe favorable demographic trends and pent-up post-recession demand will cushion them against a possible multifamily market “bubble” or the need for steep rent concessions.
Lennar, a major single-family homebuilder, is developing Astoria at Metropolitan, a 261-unit complex in midtown, and has two other projects under contract, said John Gray, director of investments with Lennar Multifamily Communities.
Charlotte’s healthy job and population growth make such projects good bets, he said. Vacancy rates are at about 5 percent, according to Real Data, well below the 7 to 8 percent that Warren calls an equilibrium point.
“Every successive apartment deal that’s been delivered, people have been concerned and saying, ‘Maybe this is the straw that breaks the camel’s back,’ ” Gray said. “But the demand side of the equation has been very strong.”
Ben Collins of Crescent Communities, which is building the 296-unit Crescent Dilworth project near the Little Sugar Creek Greenway, said the current generation of young adults likes renting – especially in walkable, mass transit-friendly areas close to urban centers.
“We believe there’s an undersupply of housing in the most desirable areas,” he said.
Chris Branch of Faison, which built the 280-unit Gateway West complex on West Fourth Street, said young adults are less likely to buy houses because post-recession mortgage lending rules call for bigger down payments.
“We’re in the fifth inning of a nine-inning game,” he said, referring to the rental boom, “with potential for extra innings.”