As the first apartments began to come on stream a couple of years ago in the nation’s current wave of new supply, the two metros that topped the list for short-term vulnerability, according to most analysts, were Washington, DC and Raleigh. Because these spots had performances that held up comparatively well during the recession, they were among the first out of the gate for new construction in large volumes.
Raleigh got its first significant block of completions for this cycle in Q3 2012, and over the past nine quarters deliveries have totaled roughly 11,500 units. Those additions have grown total inventory 9.3%.
With the demand running at similarly high levels, these completions barely have impacted Raleigh apartment occupancy at all. The Q3 2014 occupancy rate was 94.8%, certainly healthy and, in fact, just 70 basis points under the cyclical high of 95.5% that was established in Q2 2012, just before the new supply began to hit.
The process of moving so much new product through initial lease-up during a short time period did cool off Raleigh’s rent growth performance. However, it’s certainly looking like what has occurred here was just a quick lull in momentum that truly didn’t inflict any notable big-picture damage. While annual rent change briefly came down to roughly zero, pricing for new leases wasn’t cut. Furthermore, during 2014’s prime leasing season in the second and third quarters, effective rents for new leases actually climbed more than 3%.
While Raleigh still has another big block of about 2,400 apartments scheduled for completion during Q4 2014, deliveries will come down drastically in 2015. Ongoing construction at the end of Q3 was just a hair under 7,000 units. That total is off 38% from peak activity seen during the cycle, and that comparison should be down to just half the recent peak in only a quarter or two.
A few months from now, then, Raleigh appears to be positioned to realize apartment revenue growth that’s about back in line with the very solid average anticipated for the nation as a whole. And, as much as we hate to encourage developers in a metro where building can get somewhat overly aggressive very quickly, it’s actually time to start lining up additional starts that will yield new supply needed to accommodate likely significant demand in 2016-2017.
(Image Source: Shutterstock)