There's an old saying that people often don't know what they have until it's gone. Yet in Raleigh, N.C.'s multifamily market, owners and investors not only seem to know that life is good, they're setting their sights on more of the same.

Attracted by job growth and quality of life, about 100 new residents move each day to the Raleigh metro area, which also includes nearby Durham and Chapel Hill. Together, these communities help make up the 3,480-square-mile geographic region often called The Research Triangle. In the next 12 months, this area will add approximately 40,000 new residents to its 1.3 million population. flat, in turn, will build demand for apartments in a market experiencing a steady increase in supply.

As a result of demand, average multifamily vacancy rates have already dropped metro-wide in the last five years, from 13 percent in 2002 to 9.4 percent last year and to just 8.2 percent overall today, according to Karnes Research Co. At the same time, concessions have decreased substantially from where they were 12 months ago, and rent growth is steady at 2.8 percent over the past 12 months and 4.9 percent over the past 24 months. As of September 2007, average rents rose above $800 for the first time.

A growing population, great culture, and a highly educated workforce—Raleigh has it all, and the multifamily industry has taken notice.

A growing population, great culture, and a highly educated workforce—Raleigh has it all, and the multifamily industry has taken notice.

WHY RALEIGH?

Even with the understanding that demographic trends most often favor coastal states, Raleigh in particular shouts success. Bounded by the Atlantic to the east and the Blue Ridge Mountains to the west, it boasts a mean annual temperature of 60 degrees.

Raleigh is home to the state capitol, one of the largest business parks in the nation, two Fortune 500 headquarters, and an international airport. It also has a nationally recognized public school system and at least 10 colleges and universities, including North Carolina State University, Duke University, and the University of North Carolina. This translates into a job growth of 2.1 percent over the last seven-year period and a current unemployment rate of only 3.4 percent.

In the last two years alone, Business 2.0 magazine ranked the area its No. 1 Hottest Job Market; the U.S. Census Bureau called it out as the No. 3 Most Educated City in the nation; and Forbes placed it as the No. 4 Best City for Singles and the No. 1 Place to Live and Work in the United States. The people of Raleigh have gotten the memo. They've got it good!

THE VALUE OF VALUE

The benefits of this market parlay into a very healthy multifamily climate. Particularly during this last wave of low interest rates, Raleigh experienced a spike in values that led to a string of record-breaking property sales. The run began in late 2006, when Sperry Van Ness listed the 345-unit Avera Place in the northwest Raleigh community of Brier Creek for $45 million. This was to be the largest multifamily sale in North Carolina history. However, even as Avera Place closed above its list price at $48.4 million, or $140,000 per unit, Trammell Crow's 297-unit Alexan North Hills in Raleigh was sold to UBS Securities for $47.5 million, or nearly $160,000 per unit. The winner of the per-unit-price challenge prevailed in January 2007, when the 352-unit Lofts at Lakeview in Durham was sold by Houston-based developer The Hanover Co. to the REIT Sentinel for $63.5 million, or $180,000 per unit.

Since that time, some market shifts have occurred. Case in point: There are indications via current offerings that some equity is leaving the market. Most experts agree that this has little to do with Raleigh itself, but rather with corporate strategies that favor major metros with high barriers to entry. Although Raleigh does have increasing barriers to entry in the form of land prices and political red tape, it does not have a land shortage. The city also did not experience the housing “crisis” that is plaguing much of the nation, meaning its multifamily market is not being fed by renters priced out of the single-family home market. Volume also is down very slightly, at $838 million in multifamily properties sold in 2007, according to New York-based research firm Real Capital Analytics. Fortunately, volume has been so high in this market over the last several years that, even with the reduction, Raleigh's volume track record remains far above average.

TO BUILD OR NOT TO BUILD

Raleigh's most concentrated growth is occurring across the western portions of the city, traveling toward Durham and Cary on Highway 55 and Highway 70. In these markets in particular, fundamentals range from great to excellent, and developers who have shown restraint since a multifamily construction surge in the early 2000s have emphatically begun to introduce new units.

Simultaneously leading the new construction charge are the amenity-heavy submarkets of Northwest Raleigh and Cary/Morrisville/Apex, which is west of Raleigh proper. These submarkets are located close to parks, the airport, and major transportation corridors, as well as employment centers such as Research Triangle Park.