No end in sight: Triangle real estate experts say rent will keep going up this year

A trio of local industry leaders gave the Triangle Apartment Association a rosy picture of the year ahead for landlords, predicting at the group’s annual conference last week that rental prices would likely continue to hit new highs this year.

“I mean, lumber prices are through the roof, and every other component that goes into those multifamily units is up, especially the land,” said John Linderman, regional sales and leasing director at commercial real estate firm Avison Young.

Five years ago around this time, a one-bedroom apartment was renting for just under $1,000 in the Raleigh-Cary metropolitan area, according to an analysis of Apartment List data. In early 2021, they were going for about $1,100. Last month, the median price hit $1,343.

That’s a 35% increase in five years, most of which has built up since the start of 2021. It’s an explosive rate that outpaces the nationwide average, which Apartment List estimates is closer to 26% over the past five years.

Linderman said unless companies decide to take a lower rate of return on their rental investments, the prices will continue to rise.

Economist Michael Walden, a recently retired North Carolina State University professor, said the Triangle economy was back in good shape after the brief recession caused by COVID-19 and rental prices would more than likely continue to soar.

“I can’t think of a better place to be in the U.S. than right here,” he told the crowd. “All the forecasts are very positive for this area.”

“We are crushing it in North Carolina,” seconded Linderman. “This is where people want to be.”

Linderman said some companies avoided the region prior to the pandemic because mass transit options are lacking and there’s not as dense of an urban core as competing cities. COVID-19 changed those priorities.

“We became an even greater place to do business during the pandemic, because of who we are, what we are, the diversity we represent, the education that we represent,” Linderman said.

Walden said it was encouraging to see businesses like electric vehicle-maker VinFast investing in counties on the periphery of the Triangle.

“That, to me, is a positive because it may mean that we can focus more of the growth ... out of the core counties of the Triangle where housing prices are skyrocketing to surrounding counties where the housing prices are much more moderate,” he said.

Inflation and interest rates could eventually lead to ‘market correction’ for rent

Vacancy in rental apartments is way down, which is fueling the price spike.

“Occupancy — for the first time ever — is at 97% across the region. For the last five years, we’ve been above 95%. We’ve never been at 97%,” Linderman said.

“It’s essentially unheard of,” said Ashley Rogers, senior market analyst at the real estate research company CoStar Group, noting that rental companies were offering significantly less concessions to attract renters as a result.

Linderman noted that with monthly rent closing in on the cost of a mortgage, down payments were all that stood in the way for many prospective homebuyers.

“A lot of people don’t have an $80,000 check to go buy a house, so they’re at your door leasing an apartment, and paying whatever you say they need to pay,” he said to laughs.

Walden cautioned, however, that inflation was something to watch. The Federal Reserve Board voted last month to raise the benchmark interest rate for the first time in three years in an attempt to rein in inflation.

“If you press me, I’d say that the odds of a recession later this year, somewhere between 25% and 33%,” Walden said. “But it is something you should have on your radar screen. Something you should be prepared for. You are in an industry where borrowing money is very important, where business expansion is very important. And if we have a recession, borrowing is going to be a lot more expensive.”

Rogers agreed that a market correction was possible.

“The long term pressure of inflation plus stagnant wages, is what would potentially, I believe, cause for there to be a correction,” she said.

This story was originally published April 5, 2022 at 11:12 AM.

Mary Helen Moore

The News & Observer

Mary Helen Moore covers Durham for The News & Observer. She grew up in Eastern North Carolina and attended UNC-Chapel Hill before spending several years working in newspapers in Florida. Outside of work, you might find her reading, fishing, baking, or going on walks (mainly to look at plants).