Why Raleigh-Durham Is One Of The Top Secondary Apartment Markets

One question now for the Triangle apartment market, according to the speakers at Bisnow's first Raleigh-Durham Apartment Forum, is whether the exceptional recent growth of the market — rents, occupancies, new development — has been the result of a particularly good cycle, or a more fundamental shift in the regional economy toward the better.

One can argue the cycle has been good: after all, this is a time when millennials want to rent, and so do a lot of older baby boomers, many of whom can afford Class-A properties with all the trimmings.

One can also argue that as Raleigh-Durham's eds, meds and tech industry have boomed and the population has grown — with talent wanting to live here — the change has been in market fundamentals. 

So which is it?

The answer is some of both, the speakers said.

Demand for multifamily product has been especially brisk in Raleigh-Durham because of demographic changes in the last 10 years, like in a lot of markets. 

As they left school and their parents' homes, millennials spurred demand for apartments, the speakers said, but at least half of the rental property demand growth has been from downsizing baby boomers, who want mobility and flexibility. Single women in their 40s and 50s also have been a strong factor in apartment demand locally. 

Besides demographics, there has been another change in the last decade in tenant demand, the speakers said. At one time, it was enough for a Class-A apartment to just have a good location (and that included the suburbs) and a handful of standard amenities.

Now tenants, and especially the large group of renters by choice, want more from their locations, such as walkability, even in the suburbs, though urban infill locations are better.

They also want the apartment community they live in to stand out in some way, to not be just a check-the-box commodity.

Authentically themed properties are very desirable, the speakers said, reporting recent developments that they knew of, such as a "foodie" theme in one property that features cooking-oriented common amenities, including a clubhouse more like a restaurant than a conventional apartment clubhouse.

Even more important to tenants these days are apartment amenities that make their lives easier, such as dog walking or package handling or other services.

Improved soundproofing also counts as a highly desired amenity among today's tenants, the speakers said — since it is something that also makes life easier, or at least makes one's home a more relaxing place to be.

Tenants are more willing to trade space for comfort. Even in Class-A developments in Raleigh-Durham, the speakers said studios and smaller one-bedroom units are very popular. Part of the reason is cost.

But it is also true that a property's common areas are a little more important to residences than they once were, and the absolute size of an apartment a little less so.

Investors are interested in Raleigh-Durham multifamily properties for a number of reasons. One is the strength of the market's fundamentals, which probably represents a major shift in the local economy just in the last decade or so, the speakers said.

For one thing, the economy is more diverse than ever, and there has been job growth in industries that are fairly recession-resistant: education, medicine and especially tech. The Triangle is known worldwide for its innovative tech industries, and that has helped Raleigh-Durham stand out in the minds of investors. 

Not all, or even very many, secondary U.S. markets have that kind of advantage.

Investors also want to hunt for properties in Raleigh-Durham for some of the same reasons that people like to live here, the speakers said. For example, the cost of living is relatively low, and the growth in jobs is attracting a steady in-migration, supporting both occupancies and future rent growth.

There is more land for investment here than in many markets, especially the larger gateway metros. Land suitable for multifamily development in Raleigh-Durham is not as inexpensive as it once was, especially in the Downtown submarkets. 

Even so, developable Raleigh-Durham land is still cheaper than gateway markets or even some of the larger secondary markets that are comparable, such as Denver. 

The apartment market faces challenges. One difficulty cited by all the speakers is the cost of development, which has spiked in recent years, just as it has in many parts of the country. Part of that is the cost of land, but perhaps a greater part is the cost of construction, especially as skilled workers are harder to find.

There is also the potential for oversupply in the local apartment market, especially in Class-A product.

The speakers characterized a potential oversupply problem as less urgent for Raleigh-Durham than gateway markets that have seen a vast amount of new product in recent years. The area's growth has been a lot more steady, they said.

Though rents are still relatively low in Raleigh-Durham, a lack of affordable housing is a growing concern here. If local municipalities, in cooperation with the private sector, do not start planning to deal with affordability now, the problem is only going to get worse, the speakers said.