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  • Writer's pictureCJ DiMaggio

Market focus: multifamily housing in Charlotte

Will COVID-19 sink one of the South’s hottest housing markets?


  • Despite near-term uncertainty resulting from COVID-19, Charlotte remains a compelling market for multifamily housing investment and development owing to its diverse and resilient economy.

  • Charlotte is currently witnessing historically peak absorption rates for for-sale multifamily housing.

  • Single-family housing construction in the central portions of the metropolitan area never fully recovered from the Great Recession, so unmet demand in those areas may be encountered.

  • However, over-development of multifamily rental housing over the past five years may restrain the conversion of renters to buyers -- and for-sale multifamily prices -- as renters enjoy an abundance of affordable, new, centrally-located rental options.

  • One response to increasing competition from rental housing is to differentiate for-sale multifamily housing by incorporating design elements increasingly valued by homebuyers -- such as home offices, private fitness rooms and luxury finishes.

  • In the wake of the pandemic, developers are encouraged to incorporate private outdoor spaces like balconies, atriums and courtyards in their designs, as well as modular layouts that facilitate telecommuting, in-home education and multi-generational use.

  • Projects may be able to meet the highest levels of demand and absorption within the $250,000 to $349,000 price range.

Where is Charlotte's economy headed?

After the longest economic expansion on record -- lasting 113 months -- the abrupt arrival of COVID-19 and the shutdown measures mobilized to combat its spread have dramatically impeded regional economic activity. It is estimated that the Charlotte region lost about 71,000 jobs during the first quarter of 2020.

Companies providing face-to-face services -- like non-grocery retail, restaurants and leisure and hospitality -- bore the brunt at first, but though manufacturers were slower to feel the economic shock, supply chain shutdowns and distribution challenges have led to several plant shutdowns.

On the other hand, essential services like e-commerce warehousing, groceries, pharmacies and medical device assembly operations appear likely to increase hiring. Amazon, Harris Teeter and CVS, for example, have announced additional hiring plans within the region. The UNC Charlotte Economic Forecast currently forecasts a statewide unemployment rate of 9.9% at the end of 2020 -- a dramatic increase from the 3.7% observed at the end of 2019.

Prior to COVID-19, the Charlotte metropolitan area exhibited remarkable economic strength in 2019, as highlighted by the following indicators:

  • Total population: 2.64 million

  • Annual rate of population increase (2010-2019): 1.78% vs. U.S. average of 0.66%

  • Total Gross Domestic Product: $187 billion

  • Total employment: 1.49 million

  • Unemployment rate: 3.7% vs. 3.9% U.S. average

  • Forecasted 10-year job growth: 45.2% vs. 33.5% US average

  • Fortune 1000 headquarters: 18, including Bank of America, Lowe’s, Honeywell, Nucor, Duke Energy, Jeld-Wen, Dentsply-Sirona, and Albemarle

These macroeconomic conditions suggest that Charlotte will remain an attractive market for housing construction after near-term economic uncertainty is resolved and unemployment returns to pre-pandemic levels.

Demand for multifamily housing

The Charlotte metropolitan statistical area (MSA) is currently experiencing a seller’s market in all types of for-sale housing, including multifamily housing, with only 1.2 months of saleable inventory on the market as of June 2020 and a median price per square foot of $158. This low inventory is persistent across the vast majority of zip codes and counties within the MSA.

In its May 2018 Comprehensive Market Analysis, the U.S. Department of Housing and Urban Development Office of Policy Development and Research estimated that only about 12% of the for-sale housing demanded within the MSA over the 2018-2021 time period was already under construction. The Central submarket (i.e., Mecklenburg and Union Counties) was somewhat better served, with just over 15% of demand met by current construction. The rental market is much better served by current construction, with about 42% of the MSA’s overall expected demand and 57% of the Central submarket’s demand met by projects in progress.

The for-sale housing market in the Central submarket is currently tight, as job growth, increased net in-migration, and low levels of new home construction have resulted in the absorption of the excess inventory created in the late 2000s. The Department of Housing and Urban Development (HUD) estimates demand to be greatest for single-family homes priced from $250,000 to $349,000.

Supply of multifamily housing

Charlotte is increasingly a supply-constrained housing market, with population growth outpacing homebuilding, contributing to home price appreciation in excess of inflation. From 2010 to 2017, the total number of housing units in the region grew by 88,494 units, or a total of 10.3%. This growth has resulted in an annual growth rate of a little more than 1.3%, which is lower than both the population and household growth rates, which were closer to 2%.

In April 2018, multifamily construction in Charlotte hit a 30-year high. Permit approvals produced an average of 6,500 new apartment units annually between 2014 and 2018, growing the region’s inventory by 16.6% in just four years. During that period, healthy absorption kept pace with the increase in supply, but there are indications that may be changing. Occupancy has dropped below 95% since then and annual rent growth fell to just 2.0% in 2018, which is the softest annual rent growth Charlotte has seen since 2010. Though supply and absorption were roughly at parity for the period of 2013-2016, new supply noticeably exceeded absorption in 2017-2018, driving down occupancies even in the face of strong job and population growth.

The torrid pace of permitting continued through 2018, with a yearly record of 9,671 units permitted, though 2019 saw a modest (14%) attenuation, with just 8,286 units permitted. Aggressive permitting and construction through the period appear to be reflected in reduced absorptions, which trended down noticeably from the mid- to high-90s in 2013-2014 to the mid-80s in the most recent full year of reporting, 2017. Unit valuations have been steadily increasing, however -- reaching an all-time high of $98,550 in 2019.

National brokerage CBRE sees the divergence between project completions and absorptions spiking to even higher levels in 2019 and 2020, after taking a breather in 2018.

This suggests that a modest excess in supply will constrain rent appreciation over the next few years and that differentiation in either amenities or landlord concessions will be the key to sustaining occupancies at successful future developments.

Overall, this downward pressure on rents may be expected to negatively impact pricing for comparable for-sale multifamily developments, as more renters prefer to enjoy new, well-equipped rental units at reasonable rents rather than enter the for-purchase market. In general, renters will decline the higher fixed costs of ownership, including property taxes and transaction costs, if they are able to rent comfortable units that meet their needs, especially if they wish to retain an ability to relocate to another metropolitan area for career advancement within a 2-5 year time frame. That said, housing prices in both Charlotte and the region -- for both owner-occupied and rental housing -- have increased at a rate greater than inflation since 2010 and will likely continue to do so as long as the rate of population growth exceeds the rate of homebuilding.

Significant divergences also appear within the metropolitan area. Single-family home construction (including townhomes and condominiums) in the Central submarket has generally trended upward since 2010 but remains well below the historically high levels reached during the housing boom of the mid-2000s, strongly suggesting that the Central submarket is underserved and offers special opportunities.

Within the for-purchase multifamily market, there are currently 33 condominium or townhome developments being actively marketed within a 10-mile radius of downtown Charlotte. These range in price from the low-$200s for starter homes in Derita/Statesville to over $1.8 million for luxury townhomes in Myers Park, though several mid-market offerings both northwest and northeast of downtown occupy a price point in the $400s-$500s.

Increased density and upscale custom offerings are some strategies for offsetting some of the high land costs that are increasingly seen across the MSA, with developments south of downtown targeting price points $900,000 and higher.

Looking forward

Consider COVID-19 implications

Though it is far too early to speculate about what long-term transformations in buyer preferences may be precipitated by the experience of COVID-19, it seems likely that either through increased municipal regulation or changes in buyer preference and risk tolerance, multifamily housing projects will be encouraged or expected to facilitate greater social distancing and remote working capabilities. In terms of project planning and design, such expectations might take the form of decreased reliance on community amenities such as fitness rooms, more private outdoor spaces like balconies and courtyards, increased numbers and capacities of elevators and stairwells, and more flexible, modular configurations of bedrooms and office spaces (such as "Zoom Rooms") to facilitate in-home education and work activities. Price premiums may be realized by developments providing residents additional or exceptional access to ventilation, privacy and open space.

Differentiate for-sale offerings from rental housing

To compete with the region’s plethora of affordable, well-appointed rental housing, developers of for-sale multifamily housing should focus on features that can differentiate their properties and highlight the advantages of ownership. In the wake of COVID-19, rental complexes featuring extensive communal areas like fitness rooms, swimming pools and shared lawns may be disadvantaged relative to for-sale complexes affording residents more privacy, ventilation and outdoor space. Due to COVID-19, home offices are also suddenly in high demand due to increased telecommuting, and gym closures are driving increasing demand for dedicated home fitness rooms.

Undertake additional market research

Real estate development is a relatively slow process, so market analysis should continue throughout project planning, design and construction phases to make sure that assumptions underlying a particular development vision remain current and practical.

Are you making the most of your opportunities, in Charlotte or elsewhere?

Book a consultation with us at to make sure your project makes sense in today’s market.

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