Charlotte’s real estate boom rolled through 2017 with no major interruptions, and experts are optimistic that 2018 will bring more of the same.
Looking back on the year, all of the major real estate sectors in Charlotte seemed to prosper. Home prices shot up, thousands of new apartments hit the market, the first office tower since the recession opened and a spate of new hotel towers welcomed guests.
And there’s still plenty of new construction in the pipeline, as the cranes dotting Charlotte’s skyline attest.
Still, there were a few cracks beneath the veneer of strength. Low housing inventory and rising prices squeezed buyers and dampened the market’s growth. The thousands of new apartments opening uptown pushed its vacancy rate to almost 22 percent, nearly four times the city’s average.
And rising rents meant more renters faced the pressure of making ends meet in a market increasingly tilted toward luxury tenants who can pay top dollar.
Here’s a look ahead at what 2018 could hold for Charlotte’s real estate market, both residential and commercial. These predictions are based on conversations with Charlotte real estate professionals, both on and off the record, and data from the past year.
Another national retailer will open in uptown
For decades, retail in Charlotte followed the same pattern as many cities, shifting from the city’s core to suburban malls and shopping centers. Uptown department stores such as Belk and Ivey’s were gone by 1990, and the area got a (deserved) reputation for rolling up the sidewalks and closing at 5 p.m.
But with uptown’s growing population and continued revitalization, retailers have been giving Charlotte’s center city another look.
Whole Foods, uptown’s first full-sized grocery store and a nationally known name, is set to open in 2018 at Novel Stonewall Station, the apartment, hotel and retail development under development by Crescent Communities. That could be a signal to other national retailers that the market is viable.
Crescent Communities is developing other retail spaces on Stonewall Street, and Lincoln Harris’s mega-development on the former Charlotte Observer site is expected to include a large retail component. While uptown abounds in bars and restaurants, it still lacks major retailers such as an urban Apple store or an apparel retailer like H&M. Developers aren’t tipping their hands but behind the scenes they’re certainly pursuing such splashy tenants.
Brian Leary, president of commercial and mixed-use development at Crescent Communities, said retailers will follow uptown’s growing population, which is now estimated at about 16,500. That’s up from 11,230 in 2009, according to Charlotte Center City Partners.
“Look where people are going, first and foremost,” he said. “Everything will follow.”
Housing inventory will rise – as will prices
If you’ve tried to buy or sell a house in Charlotte, you know how tight the market is: In November, there were only 2.3 months of supply available, way below the four to six months that real estate professionals consider a balanced market.
As a consequence, houses are selling fast, in an average of 96 days – down from 104 days in November 2016 and 161 days in November 2011, according to the Charlotte Regional Realtor Association. And home prices have shot up, averaging $270, 957 in November compared to $151,470 in November 2011.
That hasn’t dulled the housing market, however. Demand is still strong. Through November, 43,754 home sales closed in the Charlotte region. That’s almost double the 25,332 sales closed at the same point in 2011.
The number of new listings in Charlotte jumped in November by 8.3 percent, giving real estate agents hope that the inventory crunch might be easing.
“Should new listing activity... continue at the current pace, we’re optimistic that inventory across the region can be replenished,” said CRRA president Roger Parham. But it will take a while for increased new supply to put a lid on prices, meaning 2018 will be another year of sticker shock for would-be buyers.
New apartments will be less beige
Apartments in Charlotte have often been criticized for boring designs. Many of the newest are five-story, wood-framed buildings with monotonous, block-long facades, often beige.
But there are some signs that is starting to change, at least with the highest-profile buildings. Ascent, the 33-story, ultra-luxury tower that opened in 2017, sports a sea-green facade and colorful blocks of blue and green metal screening over its parking garage (It’s been compared, though not always favorably, to a Tetris or Jenga game).
And Crescent Communities is adding more public art.
The company painted a 280-foot-long mural on the parking deck at its new Novel NoDa apartments facing the 36th Street light rail station. Crescent Communities is installing an 18,000-square foot waving metal screen (to be called “Wonderwall”) to cover a massive, 10-story parking deck at their Stonewall Station development.
So, expect more developers to follow suit and splash some color on the outside of their new apartments – even if they’re just doing it to keep up with the neighbors.
Apartment construction will keep going strong
Despite the surge of new apartments under construction, there’s no evidence that Charlotte’s apartment market is topping out. According to Charlotte-based Real Data, an apartment-tracking firm, there were 11,674 apartments under construction across Charlotte in August – and another 12,645 on the planning board.
The reason developers keep building so many apartments? They’re not having any trouble filling them.
Here’s another way to look at it: From August 2016 to August 2017, developers added almost 9,500 new apartments across the Charlotte region. But the number of vacant apartments went up by fewer than 400. That means almost all that new supply was absorbed by the market.
Driven by population growth and strong demand, Real Data is forecasting that the apartment vacancy rate in Charlotte will stay nearly flat or tick up 1 percentage point, to just 7 percent, in 2018. Expect to see developers keep building until that vacancy rate goes higher.
Back to the ’burbs
Developers have largely been building townhouses, offices and apartments in central or close-in spots throughout Charlotte. But the intense demand for sites uptown, along the Blue Line and in popular neighborhoods such as Dilworth, Plaza Midwood and NoDa has driven up land prices there, and developers are now looking further afield where they can find cheaper land.
For example, apartment development company Dominion Realty Partners paid $7.1 million for an apartment site uptown on West Trade Street and just $5.25 million for a site in Steele Creek – despite the Steele Creek property being almost three times as big. And suburban sites are usually cheaper to build on, since they don’t require expensive parking garages that can add millions of dollars to a project’s cost.
“The pricing of the land has gotten to a point that when you couple that with where construction prices are right now, the economic prices are not making sense,” said Michael Tubridy, managing director of Crescent Communities. “The costs to develop are far exceeding rent growth.”
That trend was on display last month, when the latest round of rezoning requests filed in Charlotte showed developers planning 1,000 new apartments – all in suburban locations, around Interstate 485 or 85 interchanges. In 2018, expect developers to build more in the suburbs.
Strong office leasing, cooling construction
Charlotte saw its first new office tower in years open in 2017, the 25-story 300 South Tryon building. Others are underway, including a 33-story building anchored by Bank of America where the Observer once stood, a 26-story building for Ally Financial across the street.
And a crop of smaller office buildings are underway in the surrounding neighborhoods, especially South End.
“I think there’s enough new inventory on the horizon that you’re probably not going to see a ton of new announcements beyond what we’ve already seen,” said Joe Franco, a broker with CBRE. But he doesn’t think the office market will have any difficulty filling the chunks of space hitting the market, as job growth remains strong. And it doesn’t hurt that Charlotte is cheaper than many of its peer markets.
“If you look at the other markets we compete with historically, we’re still a good value,” said Franco. “Although we have some great inventory to get thru at this point I think Charlotte probably won’t have any trouble.”