March 11, 2025

Multifamily Investors in Raleigh Target Newer Assets in 2024

Q4 2024

Apartment construction was elevated in Raleigh-Durham in 2024 as developers delivered new units to meet the region’s growing renter demand. Projects totaling more than 13,000 units came online in 2024, a pace of completions that roughly doubled the region’s trailing five-year average. The spike in completions was met with peak levels of net absorption, and vacancies across the region inched up just 10 basis points for the full year. Net absorption totaled approximately 11,800 units for the year, a significant outperformance compared to the nearly 5,000 units per year of absorption that the market has averaged during the past decade. The 2024 absorption total was also approximately 35 percent higher than the market’s previous high. Renter demand was surprisingly strong at the end of the year, with absorption totaling approximately 2,400 units in the fourth quarter, more than tripling the historical average for the final three months of the year.

After elevated transaction activity in the Raleigh-Durham multifamily investment market from 2019 through 2022, fewer properties have traded in the past two years. Sales velocity slowed modestly in 2024, although a few more properties changed hands in the fourth quarter. Investors showed a clear preference in acquiring properties that have come online in recent years. Properties built since 2009 accounted for approximately 50 percent of total transactions in 2024, and about one-quarter of the total sales involved properties that delivered since the beginning of 2022. These trends were most apparent in the Raleigh portion of the market, while there were scattered Class B and Class C transactions closing in and around Durham. With newer assets accounting for an outsized share of total transaction activity, prices remained within the range that has prevailed since 2022 and cap rates averaged approximately 5.5 percent to 5.75 percent.

Looking ahead

Renter demand in the Raleigh-Durham multifamily market is forecast to remain strong in 2025, but a third consecutive year of above-trend supply growth will likely result in a vacancy increase. After recording minimal change in the past year, the vacancy rate is projected to finish 2025 at 8 percent, about 70 basis points higher than the average level since the beginning of 2023. While this year’s annual completions are on pace to come in with a lower total than was achieved in 2024, the cumulative impact of supply growth will serve as a bit of a drag on property performance. Local rental inventories have expanded by more than 20 percent since the beginning of 2022. Still, the region’s educated workforce continues to attract new businesses, fueling both short-term and long-term renter demand for units.

While transaction activity was limited in 2024, there was a modest uptick in sales velocity during the fourth quarter, setting the stage for continued deal flow in the coming year. The mix of properties that have sold in recent periods is slanted toward newer construction, and any rebound in 1980s- and 1990s-vintage properties would provide a boost to the overall market sales volume. These properties account for about 25 percent of the total market inventory and have historically represented approximately 30 percent of the transaction counts. The number of deals for these vintages has tailed off considerably in recent years, particularly in the Raleigh submarkets. As the competition from new construction eases in 2025 and in 2026, investors may begin to target these types of assets for acquisition.