Multifamily Research

Market Report Fourth Quarter 2018

North Carolina Metros

Vacancy Retreats Amid Robust Demand

Drivers and Slower Construction Pace Multifamily 2018 Forecast
Job creation and strong in-migration support a growing
need for rentals. Employment opportunities are contributing
Y-O-Y
to an influx of people in the three North Carolina markets. The Effective Y-O-Y
Metro Vacancy Basis Point
Rent Change
availability of professional and tech positions, in particular, draws Change

residents between the ages of 20 to 34, the prime renter cohort.

As a result, the percentage of household growth in each metro
surpassed that of the nation during the past four quarters. The
Charlotte 4.7% -50 $1,114 6.9%
apartment market will also benefit from the rise in interest rates
and an escalation in residential prices. These factors are placing
homeownership beyond the means of more tenants, keeping Raleigh 5.3% -50 $1,115 5.5%
them in the rental pool longer.
Greensboro/
4.7% -130 $820 6.2%
Construction pace begins to ease. Raleigh and Greensboro/ Winston-Salem
Winston-Salem benefited from a slowdown in deliveries over the
past 12 months, resulting in vacancy declining 60 and 40 basis
points, respectively. While in Charlotte, deliveries should begin to
taper next year. In some cases, an increase in labor and material
costs are delaying projects. In all three markets, completions have
been most prevalent in highly desired neighborhoods, especially in Investment Trends
amenity-rich, walkable urban areas near jobs. The concentration
of development has allowed vacancy to recede in the majority
Charlotte
of submarkets. In each of the metros, the availability of fewer • Existing owners without a long-term investment strategy in
apartments has driven the average effective rent to a new high in neighborhoods with increasing competition from new units may
the third quarter. find this an opportune time to list.
• Investors from across the nation are active throughout the market
targeting properties with more than 100 units at cap rates that
are typically in the high-4 to low-6 percent span.

Local Apartment Yield Trends Raleigh

Apartment Cap Rate 10-Year Treasury Rate
• Many sellers have a high price expectation for this rising interest
12% rate environment. As a result, the price gap between buyers and
sellers is widening, increasing the time for assets to transact.
9%
• More conservative lending practices have led to LTVs ranging
from 70 percent to 75 percent.
Rate

6%

3% Greensboro/Winston-Salem
0% • The resurgence of Winston-Salem’s downtown area as a live-
* 00 02 04 06 08 10 12 14 16 18*
work-play environment will continue to keep this area highly
competitive with bidding. Here, Class C assets exchanged hands
at an average of $55,000 per door with a mid-7 percent cap.
Sales Trends
Sales Price Growth
• Metrowide, Class C assets traded at an average of $45,900 per
* Cap rate trailing 12-month average through 3Q; Treasury rate as of Sept. 28. door, with an average cap rate in the mid-7 percent range.
Price per Unit (000s)

$120
Includes sales $1 million and greater for Charlotte, Raleigh and12%
Year-over-Year Gro

Greensboro/Winston-Salem.
Sources: CoStar Group, Inc.; Real Capital Analytics
$90 9%

$60 6%
Charlotte
3Q18 – 12-MONTH PERIOD
Employment Trends Local Apartment
EMPLOYMENT:
EMPLOYMENT:
Yield Trends
Metro United States Apartment Cap Rate 10-Year Treasury Rate
6.0% 2.5% increase in total employment Y-O-Y
• Charlotte employers created 29,500 positions over the
Year-over-Year Change

12%
4.5% past four quarters, up slightly from 28,400 one year ear-
9%lier. The government and professional and business ser-
3.0% vices sectors each contributed more than 8,300 jobs.

Rate
6%
1.5% • Hiring dropped the unemployment rate to 3.4 percent
3%in September, the lowest rate since 2000. The tight rate
0% makes it harder for firms to find workers.
0%
14 15 16 17 18* 00 02 04 06 08 10 12 14 16 18*

Completions and Absorption

CONSTRUCTION:
Sales Trends
Completions Absorption 7,800 Sales Price Growth
units completed Y-O-Y

Average Price per Unit (000s)

$120 12%

Year-over-Year Growth
12 • Builders finalized 7,800 apartments during the past 12
$90
months, up 200 units from the prior9%year’s level. The
Units (000s)

9 Rock Hill/Fort Mill submarket received the largest por-

$60 6%
tion with nearly 1,500 rentals.
6
• $30
Developers also have 13,400 apartments 3% under con-
3
struction with deliveries expected into 2021 and more
$0 0%
0
projects
14 are15in the 16
planning
17stage.
18*
14 15 16 17 18*

Vacancy Rate Trends

VACANCY:

6%
Metro United States 20 basis point decrease in vacancy Y-O-Y

• Even though construction is brisk, robust renter demand

5%
lowered vacancy to 4.4 percent in September. One year
Vacancy Rate

earlier, the vacancy rate climbed 40 basis points.

4%
• By vintage, the largest vacancy decline was in apartments
3% built before 1970, where rents are more affordable. In
these units, the rate fell 140 basis points to 2.5 percent in
2%
the last 12-month period.
14 15 16 17 18*

RENTS:
Rent Trends
Monthly Rent Y-O-Y Rent Change 4.6% increase in effective rents Y-O-Y

$1,200 8% • Lower vacancy supports rent growth. During the last four
Year-over-Year Change

quarters, the average effective rent advanced to $1,101

Monthly Effective Rent

$1,000 6% per month, matching the previous year’s gain.

$800 4% • Older, more affordable buildings registered the strongest

year-over-year rent increase. In pre-1970s apartments
$600 2% the effective rent vaulted 5.2 percent to an average of
$873 per month.
$400 0%
14 15 16 17 18*

* Forecast
 Multifamily Research | Market Report

DEMOGRAPHIC HIGHLIGHTS

3Q18 MEDIAN HOUSEHOLD INCOME 3Q18 AFFORDABILITY GAP MULTIFAMILY (5+ Units) PERMITS

Metro $63,591 Renting is $430 Per Month Lower 10,084 1H 2018

U.S. Median $61,789 Average Effective Rent vs. Mortgage Payment* g 94% Compared with 1H
2014-2017

3Q18 MEDIAN HOME PRICE FIVE-YEAR HOUSEHOLD GROWTH** SINGLE-FAMILY PERMITS

Metro $237,088 127,000 or 2.6% Annual Growth 16,639 1H 2018

Compared with 1H
U.S. Median $260,016 U.S. 1.2% Annual Growth g 28% 2014-2017

*Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 90% LTV, taxes, insurance and PMI. **2017-2022 Annualized Rate

Lowest Vacancy Rates 3Q18 Investors Searching For Yield Find

Assets in Surrounding Counties
Employment Trends Local Apartment Yield Trends
Y-O-Y
Vacancy
Submarket UnitedEffective
Metro Basis Point States Y-O-Y %
• Apartment
Trading Caprose
activity Rate 6 10-Yearcompared
percent Treasury Rate
with the
Rate Rents Change
6.0% Change
prior 12 months as investor interest remains strong.
Year-over-Year Change

12% this time, assets changed hands at an average

During
4.5%
Concord/Kannapolis/Salis- of $110,600 per unit, up 8 percent year over year.
3.4% -40 $927 6.8% 9%
bury
3.0% • Cap rates are down 40 basis points from one year ago,
Rate
SUBMARKET TRENDS

6%
averaging 6.1 percent in the third quarter. Initial returns
East Charlotte 3.9% -50 $941 3.1%
1.5% for newer Class A assets can dip below 5 percent.
SALES TRENDS

3%
Southwest Charlotte 3.9% -50 $1,050 5.1% Outlook: Older Class C properties in outlying counties
0%
0% at cap rates above 7 percent, attracting yield-
can trade
14 15 16 17 18* 00 02 04 06 08 10 12 14 16 18*
Gaston County 4.1% 0 $903 6.2% seeking investors.

Rock Hill/Fort Mill 4.1% 0 $1,006 3.6%

Completions and Absorption Sales Trends
North Charlotte 4.2%
Completions-10 $1,061
Absorption 2.4% Sales Price Growth
Average Price per Unit (000s)

$120 12%
Year-over-Year Growth

South Charlotte 12 4.8% -20 $1,053 2.1%

$90 9%
Units (000s)

Myers Park 9 4.9% -30 $1,266 2.3%

$60 6%
6
UNC Charlotte 5.0% 40 $1,036 5.5%
$30 3%
3
Uptown/South End 5.1% -100 $1,648 6.5% $0 0%
0 14 15 16 17 18*
14 15 16 17 18*
Overall Metro 4.4% -20 $1,101 4.6%

* Trailing 12 months through 3Q18

* Includes submarkets with more than 10,400 Rate
Vacancy units. Trends Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
Metro United States
6%

5%
Rate
Raleigh
3Q18 – 12-MONTH PERIOD
Employment Trends EMPLOYMENT:
Metro United States 2.8% increase in total employment Y-O-Y
4%
Year-over-Year Change

• Since the third quarter of last year, employers added

3% 26,000 workers to payrolls, well above 18,900 in the prior
yearlong period. Hiring brought the unemployment rate to
2%
3.3 percent in September, the lowest rate of this cycle.
1% • Job creation was led by the professional and business
services sector, which created more than 7,500 positions
0% during the past 12 months.
14 15 16 17 18*

Completions and Absorption CONSTRUCTION:

Sales Trends
Completions Absorption 5,260 Sales
units Price Growth
completed Y-O-Y

Average Price per Unit (000s)

$140 16%
8 • Deliveries slowed slightly over the past four quarters as

Year-over-Year Growth
5,260 units were finalized, just 70 rentals
$105 12%shy of the prior
Units (000s)

6
year. Developers were most active in the North Cary/
$70
Morrisville area where 1,445 apartments8% were delivered.
4
• $35
Builders also have roughly 8,800 units under
4% construction
2
with completion dates scheduled into 2020 and more
$0
rentals are planned. 0%
0
14 15 16 17 18* 14 15 16 17 18*

Vacancy Rate Trends VACANCY:

8%
Metro United States 60 basis point decrease Y-O-Y

7%
• Renter demand outpaced new inventory year over year,
Vacancy Rate

contracting vacancy 60 basis points to 4.8 percent in the

6% third quarter. A 30-basis-point rise was recorded last year.
• Among submarkets, the highest vacancy is posted in
5%
Northwest Durham/Downtown at 7.1 percent. Here the
rate declined 90 basis points during the past four quarters
4%
even though more than 600 units were delivered.
14 15 16 17 18*

Rent Trends RENTS:

Monthly Rent Y-O-Y Rent Change 3.5% increase in effective rents Y-O-Y
$1,200 8% • Effective rent jumped 3.5 percent since September of
Year-over-Year Change
Monthly Effective Rent

2017 to $1,106 per month on average. In the previous 12

$1,000 6% months, rent increased 2.4 percent.
$800 4% • By vintage, the largest rent growth was registered in
buildings constructed during the 1970s. The more
$600 2% affordable average rent in this age group jumped 5.4
percent to $929 per month.
$400 0%
14 15 16 17 18*

* Forecast
 Multifamily Research | Market Report

DEMOGRAPHIC HIGHLIGHTS

3Q18 MEDIAN HOUSEHOLD INCOME 3Q18 AFFORDABILITY GAP MULTIFAMILY (5+ Units) PERMITS

Metro $70,801 Renting is $725 Per Month Lower 8,169 1H 2018

U.S. Median $61,789 Average Effective Rent vs. Mortgage Payment* g 83% Compared with 1H
2014-2017

3Q18 MEDIAN HOME PRICE FIVE-YEAR HOUSEHOLD GROWTH** SINGLE-FAMILY PERMITS

Metro $275,972 112,000 or 3.0% Annual Growth 14,764 1H 2018

Compared with 1H
U.S. Median $260,016 U.S. 1.2% Annual Growth g 26% 2014-2017

*Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 90% LTV, taxes, insurance and PMI. **2017-2022 Annualized Rate

Lowest Vacancy Rates 3Q18 New Inventory Lures Out-of-State

Buyers to Raleigh Apartments
Employment Trends
Y-O-Y
Vacancy Effective Y-O-Y %
Submarket Metro Basis Point
Rate
United States
Rents Change • Transaction velocity remained relatively steady since
Change
4% September of 2017, even though many local buyers
Year-over-Year Change

moved to the sidelines.

3%
Northwest Raleigh 4.1% 0 $1,078 2.2% • Assets traded at an average of $125,000 per door,
2% up 4 percent over the past four quarters. During this
SUBMARKET TRENDS

Southwest Durham 4.4% -80 $1,051 3.8% time, the metro’s average cap dipped 10 basis points
1% to 5.4 percent, the lowest among Carolina metros.
SALES TRENDS

Central Raleigh 4.5% 10 $1,145 3.2%

0%
Outlook: Strong demographic and employment trends,
North Cary/Morrisville 4.5% 15 -10 16 $1,184 17 3.4% coupled with new inventory, will continue to draw
14 18*
investors to the Raleigh market.
South Cary/Apex 4.6% -10 $1,116 0.5%

Near North Raleigh Completions

4.7% and Absorption
-50 $1,089 3.5%
Sales Trends
Completions Absorption Sales Price Growth
Far North Raleigh 4.8% -20 $1,085 5.0%
Average Price per Unit (000s)

$140 16%
8
Year-over-Year Growth

Southeast Raleigh 4.9% -80 $1,034 6.4% $105 12%

Units (000s)

6
Northeast Raleigh 5.0% -190 $1,041 2.9% $70 8%
4
East Durham 5.1% 0 $1,001 6.7% $35 4%
2
Chapel Hill/Carrboro 5.1% -230 $1,138 6.1% $0 0%
0
14 15 16 17 18* 14 15 16 17 18*
Overall Metro 4.8% -60 $1,106 3.5%

* Trailing 12 months through 3Q18

Vacancy Rate Trends Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
Metro United States
8%

7%
Rate
Greensboro/Winston-Salem
3Q18 – 12-MONTH PERIOD
EMPLOYMENT:
Employment Trends
Metro United States 1.6% increase in total employment Y-O-Y
4%
• The unemployment rate dropped to the lowest rate since
Year-over-Year Change

3% 2000, resting at 3.8 percent in September. Still, 10,100

jobs were created in the past 12-month period, up from
2% 100 one year earlier.

1% • After receiving city and state incentives, National General

Insurance announced that it will remain in Winston-
0% Salem and add 626 new jobs over five years.
14 15 16 17 18*

CONSTRUCTION:
Completions and Absorption Sales Trends
Completions Absorption 970 units completed
Sales Y-O-Y
Price Growth

Average Price per Unit (000s)

$80 16%
4 • Following the completion of roughly 1,900 apartments

Year-over-Year Growth
$60one year ago, developers finalized 12%nearly 970 rentals
Units (000s)

3 during the past 12 months. The South Greensboro sub-

$40market received the majority of this year’s
8% units.
2
• Developers also have 2,000 rentals underway with com-
1 $20 4%
pletion dates scheduled into 2019. Additional buildings
are in the planning phase.
$0 0%
0
14 15 16 17 18* 14 15 16 17 18*

VACANCY:
Vacancy Rate Trends

8%
Metro United States 40 basis point decrease in vacancy Y-O-Y

• Over the year ending in September, healthy rental demand

7%
assisted in lowering the vacancy rate 40 basis points to
Vacancy Rate

5.0 percent. During the prior period, vacancy receded 60

6%
basis points.
5% • Vacancy in apartments built since 2010 decreased 100
basis points to 5.1 percent in the last 12-month period,
4%
aided by a slower delivery pace.
14 15 16 17 18*

RENTS:
Rent Trends
Monthly Rent Y-O-Y Rent Change 4.4% increase in effective rents Y-O-Y

$840 8% • As vacancy tightens, rents continue to climb. Year over

Year-over-Year Change

year in the third quarter, the average effective rent jumped

Monthly Effective Rent

$730 6% 4.4 percent to $810 per month, building on a 4.9 percent

gain one year earlier.
$620 4%
• The largest growth was posted in Class B units as many
$510 2% of these rentals are being remodeled. Here effective rent
vaulted 3.1 percent on average to $802 per month.
$400 0%
14 15 16 17 18*

* Forecast
 Multifamily Research | Market Report

DEMOGRAPHIC HIGHLIGHTS

3Q18 MEDIAN HOUSEHOLD INCOME 3Q18 AFFORDABILITY GAP MULTIFAMILY (5+ Units) PERMITS

Metro $48,970 Renting is $264 Per Month Lower 500 1H 2018

Compared with 1H
U.S. Median $61,789 Average Effective Rent vs. Mortgage Payment* h 68% 2014-2017

3Q18 MEDIAN HOME PRICE FIVE-YEAR HOUSEHOLD GROWTH** SINGLE-FAMILY PERMITS

Metro $161,335 53,000 or 1.8% Annual Growth 5,217 1H 2018

Compared with 1H
U.S. Median $260,016 U.S. 1.2% Annual Growth g 50% 2014-2017

*Mortgage payments based on quarterly median home price with a 30-year fixed-rate conventional mortgage, 90% LTV, taxes, insurance and PMI. **2017-2022 Annualized Rate

Lowest Vacancy Rates 3Q18 Potential For Higher Yields Will Keep
Metro on Buyers’ Radar
Employment Trends
Y-O-Y
Vacancy
Metro Basis Point Effective
United StatesY-O-Y %
Submarket
Rate Rents Change • Deal flow declined 25 percent during the past four
Change
4% quarters as fewer quality properties were available.
Year-over-Year Change

Out-of-state buyers accounted for nearly 70 percent

3%
of the transactions.
2% • Robust interest in metro assets contributed to the
Burlington 4.1% -170 $888 5.5%
SUBMARKET TRENDS

average price climbing 14 percent over the past 12

1% months to an average of $78,350 per unit. The average
SALES TRENDS

High Point 4.6% 30 $779 4.7% cap rate contracted 70 basis points to 7.0 percent.
0%
14 15 16 17 18* • Outlook: The highest average cap rate among major
North Winston-Salem 4.6% -80 $813 3.8% North Carolina metros will lure yield-seeking buyers.

West Greensboro
Completions
4.8%
and Absorption
-100 $863 4.7%
Sales Trends
Completions Absorption Sales Price Growth
Average Price per Unit (000s)

$80 16%
North Greensboro 4 5.2% -100 $736 1.9%
Year-over-Year Growth

$60 12%
Units (000s)

3
South Greensboro 5.3% -30 $808 4.7%
$40 8%
2

South Winston-Salem 1 5.9% 90 $789 5.3% $20 4%

0 $0 0%
Overall Metro 14 5.0% 15 -40 16 $810 17 18*
4.4% 14 15 16 17 18*

* Trailing 12 months through 3Q18

Vacancy Rate Trends Pricing trend sources: CoStar Group, Inc.; Real Capital Analytics
Metro United States
8%

7%
Rate
 Multifamily Research | Market Report

By DAVID G. SHILLINGTON, President,

Marcus & Millichap Capital Corporation
3Q18 Apartment Acquisitions • Fed pushes overnight lending rate higher, cites economic
By Buyer Type strength in case for additional increases. The Federal Reserve
increased the federal funds rate by 25 basis points in late September,
Other, 1% Cross-Border, 9%
lifting the Fed funds rate to 2 percent. Remarks from the Fed highlight
a robust economy, spurred by accommodative fiscal stimulus,
Equity Fund
while inflation remains broadly in line with expectations. Provided
& Institutions, 23%
the economy continues to perform as expected, the Fed is likely to
increase rates in December, as well as up to three times next year.
Private, 63%
Listed/REITs, 4% • Benchmark interest rates, lending costs push higher post-

CAPITAL MARKETS
Fed meeting. After the Federal Reserve lifted overnight rates and
maintained a positive economic outlook, long-term interest rates have
pushed higher. The 10-Year Treasury yield has quickly traded toward
Apartment Mortgage Originations the 3.25 percent range, which is prompting lenders to pass on the
By Lender increased cost to borrowers. However, fierce competition for loans is
100% also leading to some cost absorption among lenders. While greater
borrowing costs may prompt buyers to seek higher cap rates, strong
Percent of Dollar Volume

75% Gov't Agency economic performance should enable rent growth above inflation. As
Financial/Insurance a result, sellers remain committed to higher asking prices, which is
Reg'l/Local Bank
50% widening an expectation gap as property performance and demand
Nat'l Bank/Int'l Bank
CMBS trends remain positive.
25% Pvt/Other
• The capital markets environment continues to be highly
competitive. Government agencies remain the largest source of
0%
14 15 16 17 18* funds, commanding slightly over 50 percent market share. National
and regional banks control approximately a quarter of the market.
* Through 2Q Pricing resides in the high-4 percent realm with maximum leverage of
Include sales $2.5 million and greater 75 percent. Portfolio lenders will typically require loan-to-value ratios
Sources: CoStar Group, Inc.; Real Capital Analytics
closer to 70 percent with interest rates in the low-5 percent range.
The passage of tax reform and rising fiscal stimulus will keep the U.S.
economy growing, underpinning strong rental demand and supporting
a national apartment vacancy rate of 4.6 percent at the end of 2018.
National Multi Housing Group
Visit www.MarcusMillichap.com/Multifamily

John Sebree
First Vice President, National Director | National Multi Housing Group
Tel: (312) 327-5417
john.sebree@marcusmillichap.com

Prepared and edited by North Carolina Offices: Raleigh:

Nancy Olmsted Ben Yelm Regional Manager 101 J Morris Commons Lane, Suite 130
Senior Market Analyst | Research Services (843) 952-2300 Morrisville, NC 27560
benjamin.yelm@marcusmillichap.com (919) 674-1100

For information on national apartment trends, contact: Charlotte: Greensboro:

John Chang 201 South Tryon Street, Suite 1220 200 CentrePort Drive, Suite 160
Senior Vice President, National Director | Research Services Charlotte, NC 28202 Greensboro, NC 27409
Tel: (602) 707-9700 (704) 831-4600 (336) 450-4600
john.chang@marcusmillichap.com

Price: $750

© Marcus & Millichap 2018 | www.MarcusMillichap.com

The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no
representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment
growth is calculated based on the last month of the quarter/year. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. This is not intend-
ed to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered
as investment advice.
Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Experian; National Association of Realtors; Moody’s Analytics; Real Capital
Analytics; RealPage, Inc.; TWR/Dodge Pipeline; U.S. Census Bureau