What's next for Raleigh's apartment building boom? A potential slowdown
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The Triangle's apartment building boom might not last.
Driving the news: Apartment construction starts have fallen significantly across the country this year due to higher interest rates, falling rents and potential overbuilding in some cities, the Wall Street Journal reported earlier this month.
Why it matters: The slowdown could mean that after the current wave of construction is finished, the number of apartments added in the region slows for several years.
State of play: More apartments are expected to open in the coming months than anytime since the 1980s, according to the Wall Street Journal.
- In many U.S. cities, the new construction is depressing rent growth, making it less attractive to start new projects.
The Triangle is no exception, with the region seeing one of the biggest construction booms in the country, Axios reported.
Yes, but: Through the first 10 months of 2023, permits for apartment buildings have fallen in Raleigh, according to city data.
By the numbers: Already, new apartment buildings are causing vacancy rates to jump.
- Vacancy rates for apartments in the Raleigh metro area are projected to be 10.4% in the third quarter of 2023, up from 6.6% a year ago, according to Cushman & Wakefield data.
- In Durham, the vacancy rate is up to 10.8%.
Rents in the Triangle are also falling after seeing some of the largest increases in the nation during the pandemic, according to an Apartment List analysis of rent prices.
- Raleigh's median rent in September was down 3% over the past 12 months and Durham's was down 3.6%,
What they're saying: Paul Marley and Hunter Bowling, of Cushman & Wakefield's Sunbelt Multifamily Advisory Group, told Axios in a statement that it is too soon to say if there will be a significant building slowdown in the Triangle.
- But they noted construction costs and financing has made it "more difficult for investors to justify starting a new project."
What we're watching: It remains to be seen if the current wave of under-construction apartments will continue to cause falling rents.
- The Triangle's growing household income and population would point to more rent growth in the long term, Marley and Bowling noted.
- "However, the high number of units that are delivering now need to be absorbed, which could create an environment where rent growth plateaus in the short term," they said.