Don’t expect Charlotte’s apartment boom to slow down anytime soon.
That’s the conclusion at the Greater Charlotte Apartment Association’s 2016 forecast on Wednesday. The factors behind the boom aren’t cooling off, and developers plan to keep building.
The share of renters in Mecklenburg County is about 43 percent of households, according to the U.S. Census Bureau. Ken Szymanski, the association’s executive director, said that’s a major shift, up from 36 percent in 2005.
“That’s unprecedented,” Szymanski said. “It was always in the 30s.”
In case you’ve missed the forest of cranes and new construction: Charlotte is in the middle of a record-breaking boom in apartment construction. According to the latest numbers from Real Data, more than 12,300 units are under construction with about 13,500 more planned.
Despite the flood of new supply, vacancy rates remain low due to strong demand, and that’s giving landlords the ability to push rents higher. The average apartment rent in Charlotte hit $1,000 last year for the first time, straining affordability.
Here are seven features of the apartment boom to watch for this year:
1 Rising demand, rising rent. Even as thousands of new apartments hit the market next year, experts expect rents to keep going higher, powered by an increasing number of renters. For example, apartment management company Greystar, which is also building the 33-story Ascent tower at Third and Poplar streets uptown, is projecting rents at its existing properties to go up 6.3 percent year-over-year in 2016.
“Charlotte’s housing stock has really declined in affordability in recent years,” said Dionne Nelson, CEO of affordable housing developer Laurel Street Residential.
2 Amenities get even fancier. The level of amenities expected by renters in new, high-end apartments keeps going up. Pet washing stations, dog walkers, dry cleaning and laundry delivery, package storage and high-end demonstration kitchens were all cited as important features.
3 The money spigot stays on. Malcolm McComb, vice chairman of brokerage CBRE, said institutional investors and private equity firms with billions of dollars to spend are increasingly looking to acquire and finance apartments, as many other assets are more volatile and aren’t providing good returns. And federal tax rules changed late last year will make it easier for foreign investors to pile money into the U.S. apartment market, he said.
“It's very difficult to find markets that look more appealing than yours,” said McComb, who is based in Atlanta.
4 Wary eyes on stocks, China, and the ‘R word.’ With North Carolina’s population growth ranked fourth among states and many of those new people streaming to Charlotte, developers are confident the renters will be there to fill new apartments. What worries them more than the market fundamentals are external risks: Stock and oil price declines, an economic slowdown in China, political turmoil, and, as Crescent Communities vice president Ben Collins put it, “the R word,” or another recession. An unexpected shock could pressure apartment developers with loans coming due at that time.
5 More creative design? Maybe. With the surge of new apartments, many of which have been four- or five-story wood-framed buildings constructed around a parking deck, there have been calls for better urban design and more variation in appearance.
“We’ve gotten a lot of media attention on multifamily design in Charlotte,” said Collins. He said that although he thinks some of the criticism is misplaced, there should be more creative, distinctive designs in Charlotte – because millennial renters, who want to have a “personal brand” that’s distinct, will be attracted. “It’s not just do something different for sake of doing something different,” said Collins.
6 Developers must adapt to technology. Like other sectors of the economy, apartment developers and managers have a whirlwind of technological change to keep up with. How do they monitor their social media feedback, which can determine whether a renter signs with them or a rival? How will they ensure their buildings are compatible with highly sought-after services, like Google Fiber’s high-speed network? How should they treat AirBnB, which lets tenants rent out their rooms like hotels without supervision? (Most leases forbid this.) How apartments adapt or fail to adapt to changing technology will help determine which succeed.
7 Renters get a bit grayer. While much of the focus has been on millennial renters, generally people in their early 20s to mid-30s, downsizing baby boomers are seen as another major source of demand. Some projections show about 20 percent of renters nationwide will be 50 or older by 2020, a mark Collins said Crescent has already reached. Although many of the new apartments under development are studio and one-bedroom units with reduced square footage geared toward young renters, a bigger supply of larger units with multiple bedrooms and more square footage could be needed to meet older renters’ demands.