CHARLOTTE, NC (Ely Portillo/The Charlotte Observer) - The booming Charlotte apartment market has been dominated by gleaming new towers and thousands of units packed onto small sites next to the light rail over the past few years, but that could be about to change.
Developers in Charlotte are increasingly turning to bigger, more spread-out sites in the suburbs, away from uptown and the Blue Line light rail and near interstates and the outer belt, as they gear up for the next apartment-building boom. They're being driven by high land prices and rising construction costs, and see suburban sites as a cheaper alternative.
That typically means cheaper rents down the line for residents in new suburban buildings, who get more space for less money. But the suburban apartment sites are more dispersed and often farther from the transit lines Charlotte is counting on to relieve some congestion, which could lead to more traffic if people in the farther-flung communities commute uptown.
To be sure, the epicentre of Charlotte's apartment boom is still uptown and close-in neighborhoods, especially those along the Blue Line and its extension to UNC Charlotte. The busiest submarket for apartment construction is the swath of land covering most of Charlotte from South End to Dilworth to SouthPark, according to Real Data, a Charlotte-based apartment tracking firm. There are just over 2,600 apartments under construction in that area, which contains the first leg of the light rail.
But the second-busiest submarket: South Charlotte, mostly below N.C. 51, an area long considered the suburban fringe of Charlotte, with more than 1,500 apartments underway.
Charles Dalton, president of Real Data, said markets such as South End and uptown that have been flooded with apartments now have much higher vacancy rates, as landlords compete to fill thousands of new units.
"If you're a developer or lender, they're looking at those numbers and saying why are we building in a place that has a 15 or 20 percent vacancy rate, when we could be building in the suburbs that have a 5 percent vacancy rate?" said Dalton. "There's pent up demand already in the suburbs."
The trend was on display recently in Charlotte, where developers have filed rezoning plans to build 1,000 new apartments in the last month. None of them are planned in urban locations: All are lower-density apartments planned at suburban sites on the city's periphery.
"We have been shifting a lot of focus to the suburbs," said Michael Tubridy, managing director of Crescent Communities.
The company recently opened Novel Providence Farm, a new apartment community on Providence Road just south of Interstate 485, as well as Novel NoDa, next to the light rail at 36th Street. "The suburban sites have been overlooked quite a bit through this wave of development."
Crescent has spent much of the past several years building on close-in sites, such as Tubridy said it's 25 to 30 percent less expensive to build in a suburban location, luring more developers. The three biggest reasons: Cheaper land, cheaper construction and no parking decks.
"The pricing of the land has gotten to a point that when you couple that with where construction prices are right now, the economic prices are not making sense" to build on infill sites, Tubridy said. "The costs to develop are far exceeding rent growth."
Here's how it breaks down.
- Cheap land: Suburban apartments are on bigger sites, but the land costs less per acre. Crescent paid $10.5 million for 7 acres in NoDa but only $12.1 million for 32 acres at Novel Providence Farm, for example. Another development company, Dominion Realty Partners, paid $7.1 million for an apartment site uptown on West Trade Street and $5.25 million for an apartment site in Steele Creek – despite the Steele Creek site being almost three times as big.
- Less expensive construction: Dense apartments on small sites cost a lot to build, developers said, especially high rises with steel and concrete. Even five-story, wood-framed buildings are expensive when they come with elevators and wrap around a parking deck, which can add millions to a project’s cost.
"A lot of the investors we deal with have a little bit of sticker shock over the current cost to build in those areas," said Tom Barker, regional president of Terwilliger Pappas, another Charlotte-based development company that's built a mix of urban and suburban apartments. The company this year opened both Solis Southline, 300 apartments tightly wrapped around a parking garage next to the light rail at Remount Road, and Solis Berewick, 275 apartments spread over a dozen acres in Steele Creek.
Those factors combine to mean that rents are generally lower in new buildings out in the suburbs, though rent at new buildings still won't be affordable for most low-income families.
At Novel Providence Farm, a one-bedroom unit is listed for $1,028 a month. A similar-sized one-bedroom apartment at Novel NoDa costs $1,313 a month.
At Solis Berewick, a two-bedroom apartment costs $1,339 a month. A similar-sized two-bedroom at Solis Southline, next to the light rail, will set you back $1,928.
"That's a pretty substantial difference," said Dalton. "Not all renters are able to pay $1,800 to $2,000 a month."
But suburban apartments can run into conflicts with established single-family neighborhoods, where neighbors are often alarmed to see higher density rental communities proposed.
One common worry: Traffic. With more people living around Charlotte's edges, roads could get even busier with commuters. One reason sites next to the light rail are so expensive is that they offer renters the chance to avoid commuting, a benefit the city is counting on to help alleviate congestion. But if developers ramp up building on sites far from the Blue Line, those benefits might not be realized.
Javier Lopez is a Steele Creek resident who's concerned about a 280-apartment community that's proposed for a site off South Tryon Street, near Youngblood Road. He and other neighbors are worried the site will increase traffic and worsen stormwater concerns.