Char­lotte at risk of adding too many apart­ments

The Charlotte Observer (Sunday) - - Business - BY ELY POR­TILLO ely­por­[email protected]­lot­teob­server.com Ely Por­tillo: 704-358-5041

Char­lotte’s high-fly­ing apart­ment mar­ket can’t ig­nore the rules of sup­ply and de­mand, ac­cord­ing to a new re­port that warns de­vel­op­ers might be build­ing too many high-end units in the city.

But the build­ing boom that’s re­shaped whole neigh­bor­hoods with thou­sands of new apart­ments shows no signs of stop­ping, and rents are still shoot­ing higher across Char­lotte. The wave of con­struc­tion prob­a­bly won’t stop any­time soon, ac­cord­ing to an anal­y­sis by apart­ment-track­ing firm Yardi Ma­trix, even as the sup­ply of new units out­strips de­mand from renters.

“In the near term, mar­kets at risk of over­sup­ply in­clude Den­ver, Seat­tle, Char­lotte, Dal­las, Phoenix and Mi­ami, where de­liv­er­ies are ex­pected to out­pace de­mand,” the com­pany wrote in its re­port, re­leased in June.

Over the next two years, the num­ber of apart­ments in the Char­lotte re­gion is ex­pected to grow by about 8 per­cent, Yardi Ma­trix found, or just over 13,000 units. At the same time, de­mand is ex­pected to grow by just 2.7 per­cent, mak­ing the re­gion’s apart­ment mar­ket start to look pretty im­bal­anced.

That’s sim­i­lar to boom­ing cities like Den­ver and Seat­tle, Yardi Ma­trix found, where sup­ply is ex­pected to in­crease 10 per­cent or more while de­mand goes up by less than 5 per­cent.

For renters, that might not be a bad thing.

De­vel­op­ers could be forced to of­fer big­ger breaks on rent and other in­cen­tives, such as re­duced se­cu­rity de­posits, to lure ten­ants for the pricey new build­ings un­der con­struc­tion. And the in­crease in sup­ply could put a damper on long-term rent growth, which has been go­ing up much faster than wages or in­fla­tion in Char­lotte for years.

For de­vel­op­ers, it could mean more apart­ments tak­ing longer to rent and less op­por­tu­nity to raise the rent when ten­ants re­new leases. “The sup­ply/de­mand im­bal­ance will put a strain on rent growth and oc­cu­pancy rates,” Yardi Ma­trix con­cluded.

The longer-term pic­ture is sim­i­lar over the next five years, the re­port said. Fu­ture sup­ply ex­ceeds fore­cast de­mand most in cities in­clud­ing Seat­tle, Char­lotte, Dal­las and St. Louis.

“De­mand will be healthy, but it is not un­lim­ited,” Yardi Ma­trix wrote.

David Ravin, the CEO of apart­ment devel­oper and owner North­wood Ravin, said ar­eas in Char­lotte with the most apart­ments un­der con­struc­tion could see short-term chal­lenges and lower rent, es­pe­cially if the econ­omy hits a rough patch. But he said flex­i­bil­ity on rent means apart­ments won’t end up dark and va­cant, like the un­sold condo tow­ers peo­ple might re­mem­ber from the Great Re­ces­sion.

“It’s not as though a lot of these sit empty. They drop their pric­ing,” he said.

Ravin said de­mand will bal­ance out sup­ply over the long term in fast-grow­ing cities like Char­lotte, as pop­u­la­tion growth brings more renters. His firm is de­vel­op­ing up­scale apart­ments across the city, from apart­ment tow­ers in up­town to lux­ury build­ings near in South­Park and near Plaza Mid­wood.

“Even if we miss the mark in the short term, will it bounce back in the long term?” Ravin said. “Yes.”

For every pub­li­ca­tion that comes out like that, there’s an­other that shows there’s ro­bust de­mand and plenty of new renters on the hori­zon.

The av­er­age rent in Char­lotte as of Fe­bru­ary hit $1,142 a month, up al­most 6 per­cent from the same month a year ago. That’s $300 higher than it was in 2013, when rent av­er­aged $842. But some ar­eas in Char­lotte have al­ready seen higher va­cancy rates as thou­sands of new apart­ments flood the area. De­vel­op­ers are com­pet­ing to lure renters to up­town.

Fig­ures from Char­lot­te­based Real Data show the apart­ment va­cancy rate up­town is 21.8 per­cent. That’s the high­est in the city by a wide mar­gin, and more than three times the Char­lotte mar­ket’s av­er­age. More than 1,100 up­town apart­ments are va­cant.

For now, how­ever, the boom is still on, with about 27,000 apart­ments planned or un­der­way.

And de­vel­op­ers are op­ti­mistic, forg­ing ahead with plans that in­cor­po­rate ever-more-lux­u­ri­ous ameni­ties like pri­vate wine bars, golf sim­u­la­tors, mas­sage rooms and com­pli­men­tary dog groom­ing in ded­i­cated pet spas.

Yardi Ma­trix noted that Char­lotte’s ro­bust econ­omy means new apart­ments will be rented even­tu­ally, even if it takes longer than de­vel­op­ers hope, and that de­vel­op­ers can hit pause on fu­ture build­ings if the mar­ket takes a dive.

OB­SERVER AR­CHIVES.

The Thirsty Beaver bar at 1225 Cen­tral Av­enue in Char­lotte is shown with apart­ments be­ing built around it. About 27,000 apart­ments are planned or un­der­way in Char­lotte.

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