Market Update: Is Charleston's Multifamily Growth Slowing Down?

Author

Paul Kelton
September 24, 2024

Today at a Glance:

 PAUL'S MARKET JOURNAL

Q4 Market Overview: Easing Supply Pressures Boost Optimism

We're heading into the last stretch of 2024 with a renewed sense of optimism. A stronger-than-expected leasing season in the spring has helped ease some of the supply pressure that's been challenging the market. In fact, for the first time in two years, Q2 saw net absorption outpace new deliveries, which is a huge win for multifamily operators in Charleston. Vacancy rates remain at 10%, which is above the national average but right in line with Charleston’s historical figures.

New supply continues to push the vacancy rate higher—up over 250 basis points in the past two years—but it’s starting to level off. The current vacancy rate sits at 10.0%, which is relatively balanced compared to other Southeastern markets. Even with over 4,400 units still under construction, the pipeline has thinned dramatically since early 2023, and fewer new projects have broken ground in 2024. That means supply pressures should ease further by 2025.

On the rent side, we're seeing some recovery. While the annual rent growth rate slowed considerably from the peaks of 2021, rents are still up 0.8% year-over-year. This outpaces markets like Charlotte and Raleigh, and although it’s down from the previous highs of 17%, it’s a positive sign. Downtown Charleston remains the priciest submarket with average rents nearing $2,500/month, but rent growth in the area is picking up as well.

Source: CoStar Analytics

Construction Pipeline: Slowing but Strong

Charleston’s multifamily inventory has grown significantly, nearly 30% since 2020. However, the pace is slowing. Over 4,400 units are currently under construction, accounting for a 6.2% expansion in inventory. But with fewer projects starting this year, we expect supply pressures to ease through 2025 and 2026. Some of the busiest areas include Summerville/Goose Creek and Downtown Charleston, where developers are responding to strong demand, particularly for mid-priced and luxury units.

Key Submarkets to Watch

- Summerville/Goose Creek: This submarket continues to expand rapidly, with more than 1,800 units delivered over the past year and more on the way. Demand here has been consistent, and rent growth remains strong.

- Downtown Charleston: The ongoing relaxation of height restrictions has spurred luxury developments, especially in the northern part of the peninsula. Rents here are among the highest in the metro area, and demand for high-end living remains robust.

- North Charleston: Demand for workforce housing near industrial zones has pushed rents higher in this area. We're seeing solid rent growth of 4.3% annually for workforce housing, outperforming higher-end properties.

Source: CoStar Analytics

Sales Activity

We’ve definitely seen a cool-down in sales volume since the peak of 2021, and it’s a clear reflection of how the multifamily market is adjusting to the bigger economic picture. Our current market reminds me more of 2019 market levels. With cap rates rising the buying frenzy from a few years ago has slowed down. Investors are being more selective now, looking for deals that promise solid returns and opportunities to add value. That said, Charleston’s market is still holding strong. Prices per unit have stabilized at a high level, showing that demand for quality properties is still there. With fewer new construction projects starting and we should see price growth begin to pick up again.

Source: CoStar Analytics

Job Growth: A Major Driver of Demand

Charleston’s job market is booming, and that’s been a major factor in driving apartment demand. Both blue-collar and white-collar sectors are expanding, with companies like Boeing, Volvo, and Mercedes-Benz continuing to invest here. Logistics and warehousing jobs are also growing, thanks to the Port of Charleston’s expansion. This job growth has attracted a diverse range of renters, from young professionals to retirees and remote workers.

Closing Thoughts

Heading into the last quarter of 2024, Charleston’s multifamily market looks poised for steady growth. The combination of strong leasing demand, job growth, and a cooling supply pipeline should keep vacancies in check and drive rent growth in the coming months. As always, don’t hesitate to reach out if you need more insights or want to explore new opportunities in Charleston’s ever-evolving multifamily market.

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