If youre wondering why the Triangle seems to have so many new apartments being built and proposed, heres your answer:
With three and a half weeks to go, the apartment market is on pace to set a record for the total dollar amount of transactions completed in a single year.
So far this year, 41 apartment buildings have sold for a combined $1.039 billion, which is the second-highest annual total ever recorded, according to real estate firm CBRE. The record, $1.063 billion, was set in 2006 during the height of the real estate boom.
The eye-popping sales total is just the latest indication of how attractive the regions apartment market has become to investors of all stripes. Two sales last week put the market over the billion-dollar mark: the sale of the Apartments of Stonehenge in North Raleigh for $40.2 million, and the sale of the Panther Creek apartments in Cary for $33.5 million.
The Stonehenge deal in particular was a reminder of how quickly multifamily assets can appreciate in todays market.
Stonehenge was acquired by Ram Realty Services, the company that is also developing the 140 West Franklin condo project in Chapel Hill. Ram bought the 452-unit complex from Robinson Development Group of Norfolk, Va., which paid $35 million for it a little over two years ago.
The apartment market will eventually cool off. The question is when and how quickly.
Investors have been scooping up apartments in the Triangle both because of this regions relative economic health compared to other areas and its solid prospects for the future. The Triangles many universities churn out a steady supply of renters, and the regions diverse economy produces the kind of high-paying jobs that help fill up luxury complexes.
The Triangles apartment vacancy rate stood at 5.5 percent in September, down from 6 percent in September 2011, according to data from Karnes Research and the Triangle Apartment Association. Rents increased by 4 percent over that period a rate of growth that investors would be hard-pressed to find elsewhere.
At 5.5 percent, the Triangles vacancy rate is the lowest it has been since September 2000, according to Karnes and the TAA.
But the strong performance over the past two years has been fueled by a culmination of several factors that are unlikely to be in place much longer. The downturn in the single-family housing market has forced many would-be homeowners to become renters, and the tightening of lending standards has prevented others from qualifying for a mortgage.
The regions housing market is now showing signs of recovery, posting double-digit sales gains in each of the first three quarters of this year. If the recovery continues, it will attract renters who have spent the past few years repairing their finances, particularly if apartment owners continue to push rents higher.
The other factor is supply. The credit crunch caused construction of all kinds of commercial real estate to halt. The lull in new apartment construction helped drive up occupancy levels in places like the Triangle, which continued to add residents even during the recession.
Now developers are racing to build new complexes. There are 6,106 apartment units under construction, and another 11,869 proposed. If all those were built the Triangles inventory would expand by 18 percent.
Of course, not all the proposed units will get built, but the completion of new projects over the next 18 months is sure to put downward pressure on rents. That will particularly be the case in areas such as Brier Creek and near downtown Raleigh where several new projects are scheduled to open around the same time.
Still, with way the economic recovery has been playing out in other commercial real estate sectors, apartments are likely to remain a shining star for a while longer.