Rents keep going up in Charlotte – but if you’re looking for a place in one of the city’s newer buildings, you might find a deal.
Recently opened upscale apartment buildings in the city are offering breaks on rent as they compete for tenants, a result of the surge in new apartments hitting the market. This week, I looked at 24 apartment buildings that have started leasing in the past two years, and found 13 of them are advertising concessions to lure new renters – up to two free months of rent, in some cases.
▪ At SkyHouse, the 24-story tower on North Church Street uptown with a dog wash, rooftop grill and bocce ball courts, new renters can get 1 1/2 months free.
▪ Midtown 205, an apartment building on South Kings Drive with a “puppy spa” and yoga room, is offering up to two months free.
▪ And Loft 135 on West Morehead Street, which features a game lounge, pool and bike storage, is offering a month free and $500 credit toward another month’s rent to new residents.
So is this a sign that Charlotte’s white-hot apartment market is cooling off? Industry insiders say no.
They point to the fact that concessions, as breaks on rent are known, are a common strategy for getting tenants to come to a new building. And the city’s number of empty apartments is still low: Almost 94 percent of apartments in the city are occupied, with a healthy 6.2 percent vacancy rate. The vacancy rate is expected to inch up only to 8 percent over the next year, even as thousands of new apartments come online.
It is very, very common, no matter what kind of market you’re in, to give concessions during lease-up.
Chad Hagler, Woodfield Investments.
“It’s not an excessive amount of concessions, but we’re certainly starting to see them creep back into the market,” said Charles Dalton, head of Charlotte-based apartment market-tracking firm Real Data.
Rent concessions are typically part of a new apartment building’s strategy to lease units and fill the building as quickly as possible. That’s needed so the owners can take in revenue and start paying back loans.
“It is very, very common, no matter what kind of market you’re in, to give concessions during lease-up,” said Chad Hagler, who oversees apartment development in Charlotte for Woodfield Investments. The company has four apartment buildings in Charlotte that have recently started leasing.
“We always budget for that,” said Hagler. “I don’t know anyone who doesn’t plan for that.”
12,782Apartment units under construction
13,425Apartment units proposed
5,827New apartment units completed and leased in Charlotte last year
$1,011Average rent, up 7.8 percent from a year ago
6.2 percentApartment vacancy rate, down from 6.7 percent a year ago
Some of the buildings developed by Woodfield, such as Mercury NoDa, are offering a month of free rent. But Hagler said demand is strong enough that the company hasn’t had to offer concessions on many units they might have otherwise.
Still, the record apartment boom nationwide is showing signs of slowing down in other hot cities.
Millennial magnets San Francisco, Denver and Seattle have seen average rents fall in recent quarters, as the surge of new supply outstrips demand. And there’s a lot riding on whether millennials keep gravitating to apartments or buy single-family homes as they get older, and whether Charlotte’s population and economy continue to grow and attract new residents to fill the buildings.
At a real estate forum this week in Charlotte, Mark Gibson, the CEO of national brokerage firm HFF, said apartments are the only commercial real estate category where new supply appears to be getting built faster than demand. But, he conceded, there doesn’t appear to be a problem yet filling most buildings.
“Those are leasing, from my perspective, surprisingly well,” said Gibson.
Dalton said older buildings haven’t had to resort to rent concessions to draw tenants – a feature of previous slowdowns, such as the aftermath of the real estate crash following the 2007-2008 recession. Apartments that have been around for years, such as Post Gateway uptown and Camden South End, generally are not advertising rent specials.
“When we’ve had a weak overall market, we’ve had everyone – whether you’re in lease-up or in business for 20 years – they were giving a month, two or three months’ free rent just to get people in,” said Dalton. “We’re certainly not at that level.”
Indeed, the strength of the apartment market and landlords’ ability to increase rents have continued throughout this boom, fueled by a growing population in Charlotte and lower home ownership rates as people rent for longer. The most recent report on the state of the market, released in February by Real Data, showed average rents in Charlotte rose almost 8 percent from a year ago.
One reason new apartments are offering concessions: Many of them are competing for the same tenants in the same areas. The surge of new apartments has largely been concentrated in uptown and surrounding neighborhoods such as South End, Plaza Midwood, Dilworth and NoDa, targeting a similar young professional demographic. And many of the buildings also have similar floor plans and amenities (bocce ball court, saltwater pool, dog park), so differentiating themselves based on price and concessions becomes more important.
Although the city’s overall vacancy rate remains low, some markets have a substantially higher share of empty units. Uptown and the Southeast-1 submarket (which includes South End) have the highest vacancy rates, at 11.9 and 11.3 percent, according to Real Data. They also have the highest average rents, at $1,694 and $1,332 a month, respectively.
Wyatt Dixon, managing principal at Proffitt Dixon Partners, said the amount of interest at new apartment buildings his firm is leasing in uptown and Matthews has been strong. At The Presley, on Stonewall Street uptown, they’ve averaged 25 new leases a month since January.
“There seems to be a whole lot of interest in the urban product for sure,” said Dixon. “We’ve just got so much demand for the urban lifestyle.”
Both new apartments are offering a month free to renters – both compensation for the lingering presence of crews wrapping up construction and a way to fill the buildings as quickly as possible.
“We’re offering some (concessions), but nothing abnormal,” said Dixon, “Because demand has been so strong.”
Rent doesn’t look likely to fall yet in Charlotte. Real Data is forecasting that rent growth will slow as more new apartments come online in Charlotte this year and building managers fight for tenants, but rents aren’t likely to actually fall. And apartment units in new buildings are still commanding eye-popping rents.
At 1100 South, which isn’t advertising concessions, a two-bedroom, 1,243-square-foot apartment goes for $3,068 a month. That’s $2.47 a square foot for the South End building, among the highest in Charlotte.
“The overall market still seems to be very healthy, and things are leasing up,” said Dalton. “Even though we are building quite a lot.”