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The Dirty Word: “Overbuilt” Markets Possibly Loom on the Horizon
John Caulfield / MULTIFAMILY EXECUTIVE / August 1, 2013
Coming out of the recession, Raleigh-Durham, N.C., seemed to be one of those can’t-miss real estate markets. Its economy and demographics were exactly what builders, developers, and investors coveted in terms of potential growth. And competitive conditions seemed ripe for the picking.
So the gold rush began, and aggressive construction of multifamily apartments followed. Maybe a bit too aggressive, say some industry watchers, who uniformly identify Raleigh-Durham among the handful of go-go markets whose building activity might be getting ahead of demand.
No one is ready to utter the word “overbuilt” yet, either about Raleigh or other hot construction markets such as Austin, Texas; Charlotte, N.C.; or West Palm Beach, Fla. It’s a matter of degree, as Raleigh’s economic growth just hasn’t been as blistering as investors and developers anticipated, says Greg Willett, vice president of research and analysis for MPF Research. He notes, for example, that over the 12 months, the Triangle region that includes Raleigh has added about 10,600 jobs, which were down from the same period a year ago.
MPF estimates there are 9,626 multifamily properties under construction in Raleigh, which when completed would increase that market’s existing inventory by 7.7 percent. Looked at a different way, construction of multifamily buildings with 40 or more units in Raleigh-Durham for the years 2013 and 2014 combined will be 111.1 percent of net absorption, according to Brad Doremus, a research and economics associate with Reis Inc. Over a five-year period, Raleigh’s new apartment supply is forecasted to add 3.8 percent annually to existing inventory, according to CoStar’s PPR Multifamily.