Q2 2022 Multifamily Real Estate Report: Raleigh-Durham, NC
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Home to a variety of major tech companies, including IBM and Red Hat, the Raleigh-Durham area of North Carolina is attracting new residents every month.
Both cities are within the state’s Triangle, which is defined by three prestigious universities: Duke University, UNC-Chapel Hill, and North Carolina State University.
During the first half of 2022, almost 27,000 new vacancies were announced, many in high-wage industries. Raleigh currently enjoys a low, 2.9% unemployment rate while Durham’s rate is slightly higher at 3.4%, identical to the state-wide rate.
Both cities’ multifamily real estate market posted rapid rent growth during Q2 2022,even as local vacancy rates moved above 5% for the first time in a year.
While transaction activity may decelerate during the second half of 2022 due to rising interest rates, local businesses are expected to add workers.
General Area Overview & Demographics
While Raleigh is almost 30 miles away from Durham, the two cities are linked for a variety of reasons, including the shared Raleigh-Durham Airport and their inclusion in the Research Triangle.
Named after Elizabethan-era explorer Walter Raleigh, the city is well-known for its many oak trees. While Durham has a smaller population than Raleigh, it’s home to two prestigious schools: Duke and North Carolina Central Universities.
The average household income in Raleigh is $94,359, with a median age of just under 34 years. Durham’s equally young population brings home slightly less, with an average household income of $82,573.
This combination of younger population and higher average incomes makes both cities hotspots for newcomers, especially those in the tech and education sectors.
Summary of Raleigh-Durham Multifamily Real Estate Performance in Q2 2022
Multifamily real estate investors continue to drive activity, as purchases during Q2 2022 were higher than the previous quarter. The median price for apartments and similar buildings rose more than 20% year-over-year.
The Research Triangle remains a favored destination for technology companies like Apple, Google and Microsoft. However, the changing interest rate scenario may contribute to fewer transactions during the 3rd and 4th quarters of the year.
Apartment construction has also gained momentum this year, with dozens of projects that should provide more multifamily units during 2022 to 2024, even though vacancy rates moved about 5% for the first time in over a year.
What are multifamily rents like in Raleigh-Durham?
As of mid-2022, the average price to rent a one-bedroom apartment in Raleigh or Durham is $1,295. This number is equal to a 6% year-over-year rise for Raleigh renters, but is similar to 2021 prices for Durham tenants.
- Rentals in downtown Durham tend to be priced at a premium, with the average one-bedroom apartment priced at $1,645.
- A one-bedroom loft apartment in seven-story downtown Raleigh is priced from $1,575 upwards.
There’s plenty of evidence that multifamily real estate investors are ready to welcome these new renters.
Purchase & Leasing Activity
Multifamily real estate sales increased during Q2 2022, with activity increasing over 20% from the beginning of the year.
This brings the number of sales closed during the first half of 2022 up by nearly 30% year-over-year.
- Median per-unit prices rose to $243,500 during the same six-month period.
- Vacancies in the Class A segment of leased real estate ended at 5.5%, which is 30 basis points higher than Q2 2021.
- Area vacancies are expected to grow slightly during the next months as more new properties begin leasing.
- The vacancy rate is forecast to end 2022 at 5.5%, which is 40 basis points lower than the market’s long-term average.
In addition to new properties becoming available, some major transactions have helped boost the overall quality of multifamily real estate.
Notable Multifamily Real Estate Deals in Raleigh-Durham in Q2 2022
The largest transaction during the second half of 2022 was the purchase of Preston View, a 382-unit multifamily complex near the Prestonwood Country Club.
Preston View is located in Morrisville, midway between Raleigh and Durham.
The property sold for over $124 million, with the seller racking up a sizeable profit. This was because the seller had acquired the property in late 2020 — less than two years ago — for just under $79 million.
Two other six-figure multifamily transactions closed in Raleigh:
- A 354-unit apartment complex near NC State University sold for $112,000 per unit. Formerly Legends Cary Towne Apartments, the updated complex is now known as Wesley.
- The Summermill at Falls River Apartments property sold for $106,000 per unit. Residents enjoy their own clubhouse, a fully-equipped business center, and even a theater room.
These are just some of many multifamily transactions.
New Multifamily Real Estate Development Activity in Raleigh-Durham in Q2 2022
Development for new multifamily properties has gained speed during the first half of 2022, with developers delivering more than 3,800 new units.
This is a major year-over-year increase from 2021’s delivery of 1,200 units.
However, the number of multifamily construction permits issued during 2022 suggests that future development will level off to prevent excessive numbers of vacant units.
With a steady stream of newcomers to the Raleigh-Durham area, what can multifamily real estate investors expect for the rest of 2022 and beyond?
Market Forecast for Raleigh-Durham’s Multifamily Real Estate Market
Since rent prices have climbed during the Q2 2022, they’re expected to cool during the second half of the year.
However, Triangle rents are still expected to rise to almost $1,665 for a one-bedroom apartment by the end of 2022.
Although interest rates may increase again, rates to expected to level off at 4%- 5% in 2023. This may slow, but not halt purchase activity.
Takeaways for Multifamily Real Estate Investors
After supply-chain delays and climbing lumber prices caused development delays, the pace of new construction in the Raleigh-Durham area is regaining its momentum.
New units are entering the rental market following 2021’s considerable supply-demand imbalance. During 2021, total net absorption was nearly three times the number of units delivered.
Do your research, keep your eye on the rate forecast, and happy investing.
Methodology
All figures presented in this article are based on MyEListing.com’s commercial real estate listing data in corroboration with other freely available data and information covering the commercial real estate industry.
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