A year ago, the Triangle apartment market appeared to be cooling after an extended run of impressive rent growth.
With a surge of new units coming on the market, rent growth was flat or down slightly across most types of apartments.
But 16 months later, the market is taking off again, according to new data from MPF Research, which analyzes apartment data in 100 U.S. metropolitan markets.
Rents for new leases – meaning a unit was vacated and a new tenant moved in – are now rising at an annual rate of 5.3 percent, among the fastest rates of any market in the U.S., and they are rising at both new and older properties. The region’s occupancy rate is now 94.6 percent, essentially full if you factor in all the new complexes still in the lease-up phase.
MPF attributes the uptick in large part to steady demand and a slowdown in new construction. The number of units under construction peaked at 11,423 at the end of 2013 but has now slowed to 6,250.
Still, such growth is remarkable considering that it is outpacing the rate at which the Triangle is adding new jobs, and also comes at a time when wages for most workers are stagnating.
While some see the apartment market as the next likely real estate bubble, developers such as Grubb Properties see things differently.
“There has been a fundamental demand shift that has occurred for a whole number of factors,” said Todd Williams, senior vice president of investments for Grubb, which owns several apartment communities in the Triangle and has several more under development.
Williams said annual rent growth for Grubb’s portfolio of units in stabilized communities across the Southeast is 5.6 percent.
Chief among the factors driving that growth is the growing numbers of millennials who are now of prime renting age. Markets such as the Triangle and Charlotte, in particular, are seeing an influx of young renters, Williams said.
Trey Hicks, 27, and Will Newman, 26, are part of that influx.
The friends and business partners recently moved to Raleigh from High Point, where they graduated from High Point University in 2011. They’re now developing a smartphone application designed to streamline the high school basketball recruitment process.
Each has rented a one-bedroom apartment in The Lincoln, a 224-unit apartment complex just east of downtown Raleigh that opened in July and is about 27 percent leased. Hicks and Newman are paying $1,165 a month for their units.
While that is more than they would pay at an older complex further from downtown, both say the location and amenities make the investment worth it. They have raised enough money from investors to be able to afford it, and The Lincoln is just blocks from the co-working space they plan to work out of on Fayetteville Street.
“I think long-term, it will pay for itself,” Newman said.
Although millennials and their desire for urban living are mentioned frequently by developers, they are not the only factor helping to sustain and expand the local pool of renters.
Since lending standards were tightened following the housing bust, many would-be homeowners have found it more difficult to qualify for a mortgage. This has kept some people renting for far longer than they would have wanted. The shortage of single-family homes for sale in the Triangle also is making it harder to find homes in certain price points.
Many luxury apartment communities are also drawing more and more interest from retirees looking to downsize.
“As you can imagine, they have higher disposable income and they are able to pay higher rents,” Williams said.
In December, Grubb is set to open its newest Raleigh community, Link Apartments Glenwood South. Although the 204-unit community will never be confused with true affordable housing, Williams said, Grubb is taking affordability into consideration by building smaller, more efficient units.
The average size of the units in Glenwood South will be less than 700 square feet, with studios as small as 495 square feet. The goal, Williams said, is to enable tenants to save on utility and other costs in order to more easily afford the rent.
“Folks in this millennial, college-graduate set as well as folks in the workforce housing set are ultimately rent-sensitive because wage growth has stagnated,” he said. “Even though we’re seeing big rental rate growth, I think that will eventually cap or mitigate just because fundamentally people won’t have the income to afford it.”