Will a 50% Increase in Downtown Raleigh Housing Units Effect Vacancy?

Downtown Raleigh is experiencing a boom in new residential construction. According to the Downtown Raleigh Alliance 2015 report, at the beginning of 2015 where were 1,840 units under construction or preparing to open. All this new construction will provide a 50% increase in the number of housing units by the end of 2016. Currently there are about 2,300 townhouses, condominiums and apartments in downtown Raleigh.

The construction does not look like it is slowing down anytime soon either. The Raleigh City Council just approved the $150 million mixed-use development project at the old Dillon Supply Co warehouse. The project includes retail, restaurant, offices, parking and an additional 260 apartment units.

With all this construction, should investors and landlords become concerned that vacancy rates will rise and rental rates could soften thus lowering a properties ROI?

It is a question that deserves consideration. The answer lies in knowing the “Who, What, Why and Where” of the residential rental market in and around Raleigh, North Carolina.

Who is Renting?

Surveys show that the typical downtown renter are young professionals whom are either single or married. They are willing to exchange a quiet life in the suburbs for the convenience of living where they work. They want to be able to walk to work, cut the commute and be centrally located to all that the downtown scene provides.

What is Being Built?

Just like homes, not all rental properties are the same. There are severe class distinctions when it comes to apartments, homes, condos and town houses which are available for rent. In order to accurately predict the impact all this construction will have on the housing market, we must first determine what is being built down there. The construction of downtown apartments is in harmony with the first class commercial and office space. These units are Class A and B units and they come with an equivalently high rental rate.

Why are they Building?

Vacancy figures and rental rates are fueled by demand. How much of a demand is there for downtown apartments? In that same Alliance report, there is a downtown vacancy rate of 2.8% for Class B/C apartments “indicating a strong demand for affordable options in and near downtown.” The average rent for downtown is currently $1,399 which is 10.5% higher than apartments within one mile of downtown and nearly 20% higher than the average rent for a 3 bedroom house in and around Raleigh. This indicates an above average demand for downtown rental property; in fact, it is a demand that is exceeding the demand for suburban rentals as seen from the overall vacancy rate of 4.8 percent for all of Raleigh.

Where is the Market Going?

The massive construction that is taking place downtown is satisfying a very specific need and will have minor effect on the overall rental market in the metro area of Raleigh. With a low vacancy rate of 4.8 percent, there remains a high demand for all types of rental housing. The national average is 7.1 percent. What is more, Raleigh saw a 7.63 percent year-over-year appreciation in median rental prices according to a recent report from All Property Management. With the national appreciation rate at only 2.71%, there is little to worry about in the rental market. The 5.78 percent appreciation in property values has added to the stability of the real estate market as a whole.

With rental prices rising higher than home appreciation, investing in rental properties right now makes good sense. If you are currently a landlord, you will want to make sure that you adjust your rents to market rates on your next tenant turnover. The professionals at Victory Real Estate, Inc. can help you maximize your income while protecting your property.