Absorption surges, but vacancy still ticks higher during first quarter in Charlotte multifamily market

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The rapid pace of multifamily deliveries in Charlotte continued during the first quarter, with further completions on the way. 

The influx of supply is in correlation with the region’s rapidly expanding population and strong labor pool. Population in the Charlotte metro area has expanded by 5% since 2020, with Lancaster County and Mecklenburg County expanding by 12% and 4%, respectively, during that time frame. 

Population growth has resulted in significant expansion in the local labor market and strong renter demand. Absorption during the last year was double levels recorded in the prior 12-month period. Additionally, renter demand in recent periods was strong enough to mitigate downward pressure on rents, which were relatively steady in the past year. 

Transaction volume in the Charlotte multifamily investment market was limited during the first quarter after building some momentum in the second half of 2023. Total sales to start 2024 lagged levels recorded in the same period of last year by 33%. In the transactions that have occurred to this point in 2024, sales have been for Class B and Class C properties built in either the 1990s or early 2000s. 

Last year, newer properties accounted for a larger share of the total, with roughly half of all sales being properties built within the past decade. With older properties being the only ones that have sold, pricing dipped to a median of $166,900 per unit. Cap rates ticked higher in the last three months, averaging 5.5%, up 25 basis points from the previous quarter.

Looking ahead

The supply-demand trends that took shape at the start of the year are likely to continue in the coming quarters. The delivery of new units is forecast to remain elevated while demand maintains a healthy pace. 

Nonetheless, with completions being projected to reach a cyclical high in 2024, vacancy conditions will likely soften. Projects totaling approximately 15,000 units are set to come online in 2024, up just 13% from levels posted last year, and higher than any annual figure recorded in the preceding decade. While the influx of new supply will push vacancies higher, the local economy and renter demand should be strong enough to support rent growth. Asking rents are expected to continue to rise at a modest pace through the end of 2024.

Sales activity in the Charlotte multifamily market should pick up through the remaining months of the year, mirroring trends recorded in 2023. Elevated construction activity will likely create some additional opportunities in the local investment market in the years to come as many of the new builds will trade once leased-up. Investors continue to demonstrate interest in area assets, and projects that are listed for sale will likely trade, although the volume of listed inventory is limited. Total sales in 2024 will likely closely track levels recorded last year. Cap rates are forecast to continue pushing higher in the coming quarters before leveling off at around 5.75% towards the end of the year.

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