In 2014, real estate tracking service Apartment Guide.com determined that metro Charleston topped the country in planned new apartments, up 8 percent from a year earlier.
Then National Real Estate Investor last year published a report — citing MPF Research figures — listing the Charleston area first in apartment inventory growth rates.
Now it’s 2016. While comparative numbers aren’t in, “the last stat I saw was six months ago, 10,000 units would be coming on board,” says John Liberatos, owner of development and property management company RentCharleston.
“Who would have thought we’d have these kinds of numbers in Charleston?” he says.
Indeed, such sky-high figures in a metro area that’s ranked around 75th in the U.S. for population have real estate watchers scratching their heads.
“It seems to be a lot coming on line,” says Elaine Worzala, director of the Carter Real Estate Center at the College of Charleston. She feels the boom could be due to the Lowcountry catching the eye of institutional investors. “If they overinvest, there’s a tendency for a herd effect,” she says. “If everything looks at Charleston, there’s more (movement) to Charleston.”
Yet the region’s apartment growth has barely impacted occupancy rates, which remain well above 90 percent. Lease prices — likely to dive in an overbuilt market — are surging. As recently as early 2013, average rents for Lowcountry apartments were below $1,000 a month. They’ve climbed steadily to $1,371 a month in June and are more than $100 higher than at the end of 2015, according to Rent Jungle.com.
“With (rising) rental rates, they are like what houses were in 2006,” says Will Jenkinson, broker-in-charge of Carolina One New Homes. He monitors the apartment industry and notes that home prices were moving up in the mid 2000s even as scores of new homes were in the works. A Post and Courier analysis that year found that 135,000 new houses were on the drawing board or under construction, at least 15 percent higher than the year before.
Apartment growth can be a counterweight to housing starts, as shoppers choose to pay rent at an amenities-filled rental complex instead of taking out a mortgage. “Rentals soak up supply,” he says.
Even high-end earners such as business executives and plant managers lease properties short-term, although typically they rent houses or condos rather than apartments. “People who move from another area, they want to survey things,” Jenkinson says.
Liberatos argues that today’s apartment scene is “a different market” from 2006-08. “That was the sale side,” he says, when apartments couldn’t fill up the units. Charleston’s median vacancy rate topped 13 percent then; it was 6.7 percent last year.
“You have years our rental (vacancy) numbers shot through the roof,” Liberatos says.
Today, “being one of the larger property management companies, we have a very low vacancy rate.”
Liberatos believes that supply will overtake demand before long and apartment owners will adjust prices to keep attracting customers. The property manager — who also rents out single-family homes and duplexes — says the impact of pricey leases has started to show up especially with college students. They’re “starting to move off the peninsula to apartment communities,” he says.
“You have to think, with that many units coming out at the same time, I would be surprised if you don’t see rent dips,” he says, while hedging his bets. “However, when you keep (hearing), Charleston’s the greatest city, (remember that) the younger generation has a lot of mobility.” If millennials embrace media-inspired hype and rush to Charleston, he says, all the new apartment units “may get absorbed by high demand. It could happen.”
Worzala says apartment developments downtown “will do fine, if they’re not too expensive. Charleston’s digital corridor keeps jobs (on) the peninsula.” In addition, there hasn’t been much new rental stock in Charleston.
She acknowledges there’s “a little bit (of) overbuilding apartments” area wide. But Worzala is skeptical about economists purporting that Gen-Ys and Zs prefer the independence of rental properties and will alter the American pattern of young adults buying a house as they age, at least once they’re married and raising a family.
“I’ve heard the demographic argument. But I do question (cases of) young folks working, with kids. Where are they going to go?”
She can imagine “hipsters” renting luxury apartments with toddlers and young children in tow. “But this thing (in which) 20-somethings stay in apartments until 40, I don’t buy it,” she says.
The local apartment boom seems more pronounced because projects get revealed even when construction is years away. Some publicized properties may not get built at all.
When ApartmentGuide.com singled out Charleston for its frothy apartment growth rate, the publication said 9,131 rental units were penciled in and included close to 4,000 units under construction in Berkeley, Dorchester and Charleston counties. The list in 2014 included complexes that would open in 2015 or this year, including 280-unit Cypress River Apartments in North Charleston; 280-unit The Standard at James Island off Maybank Highway; 930 NoMo, a 152-unit student housing development on Morrison Drive; and Cooper River Farms, a 288-unit project on Clements Ferry Road near Interstate 526.
Liberatos calls greater Charleston’s apartment outlook solid overall, and the recent surge in apartment construction stands as part of the industry’s cyclical nature.
“I’ve been doing this for 25 years. I remember the days you had to entice tenants with first month’s free rent (and other financial perks),” he says. Over time, apartment complexes upgraded to offer permanent benefits to tenants such as workout rooms, swimming pools and clubhouses.
Liberatos figures the next 24 months will be a key period to find out if apartment developers are smart about building in metro Charleston.
“But who knows,” he says, “in 24 months you might be giving away iPads with (rental) agreements.”
Reach Jim Parker at 843-937-5542 or firstname.lastname@example.org.