Sales Activity Bouncing Back in Charlotte, but Concentrated in Older Multifamily Assets
Despite continued demand in the Charlotte multifamily market, the local vacancy rate continues to tick higher. Year to date, net absorption has totaled more than 9,800 units, essentially doubling the totals from the corresponding periods from each of the last two years. Developers have been active to serve this demand, delivering nearly 11,500 units across the region to this point in the year. Expansion is concentrated in Charlotte’s South End neighborhood. The South End is one of Charlotte’s fastest-growing submarkets, with a population that has expanded by 20 percent during the past five years, consisting mainly of young professionals. There are currently projects totaling approximately 5,000 rental units under construction in the South End, down from more than 7,500 units that were underway at the beginning of last year.
Multifamily investors in the Charlotte area have been acquiring properties at a fairly steady pace since the second half of last year. Transaction volume bottomed in the first two quarters of 2023 before rebounding. Current sales velocity is similar to average levels recorded from 2015 to 2020 before volume spiked in 2021 and 2022. South Charlotte and Gaston County have been the two most active areas for investment activity year to date, combining to account for nearly 40 percent of the total transactions within the Charlotte region. South Charlotte has consistently been one of the top submarkets for transactions since 2021, while sales volume in Gaston County has been more inconsistent. To this point in 2024, transaction counts in Gaston County have already equaled the County’s combined total from 2022 and 2023.
Looking ahead
Supply and demand trends in the Charlotte multifamily market will likely continue through the end of the year. Projects totaling more than 14,000 units are forecast to come online for the full year, a cyclical high for the region. Continued growth in the local labor market and in-migration from other parts of the country should keep renter demand elevated, which will likely continue to largely offset vacancy increases in the coming quarters. Area vacancy is forecast to finish the year at 8.3 percent, creating a new equilibrium in the region. Given the region’s rapid population and inventory growth in recent years, the vacancy rate will likely range between 8 percent and 9 percent through much of 2025. Rent growth is forecast to gain some modest momentum in the coming months, which should carry over into 2025.
Sales activity in the Charlotte multifamily investment market is poised to pick up in the closing months of the year. Total sales year to date have already nearly matched the total for the full year in 2023, and there is also a good chance that year-end 2024 levels will closely track the region’s historical metrics. While the market’s activity has been dominated by Class B and Class C properties through the first three quarters of this year—and these assets should continue to change hands—top-tier properties should begin to sell at a faster clip. Before this year, top-tier assets have traded at a frequent rate in Charlotte, accounting for roughly one-third of sales in each of the past three years. Volume for Class A assets should return closer to these levels going forward, although some investors will monitor lease-up and the competitive impact of new supply before moving back into acquisition mode.
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Contact our Charlotte office for more information.