The revival of construction has become a major story in this market. “Strong apartment demand” and “builders still seeking the region out” despite high levels of construction activity are cited by the Charleston Regional Business Journal in an October 2012 report on the local market. Indeed, several major projects have recently gotten underway. Of particular note was the February start of a 200-unit luxury midrise project at Meeting and Spring streets within the Elan Midtown multi-use development described by the Journal as “Charleston’s first large-scale mixed-use apartment community in more than two decades.” Perhaps as notable as the project itself is the prestige of its co-developers—Greystar and Prudential Real Estate Investors. Reis expects the apartment component to complete construction in March 2013. In addition to Elan, the firm reports 1,879 market-rate apartment units under
construction in eight projects as of October 12. Of these, four with a combined total of 690 units have been assigned 2013 completion dates (that total likely will rise: Reis’ second quarter analysis calls for the completion of more than 800 such units next year). In addition, an April 2013 start and mid-2015 finish is scheduled for the 270-unit Mixon Apartments in North Charleston.
The year 2012, meanwhile, will be the final year of small delivery totals until the deluge begins. Only 136 units, all in the April finish of the first phase of The Channel Apartment Homes at Bowen, in Hanahan, comprised the first half 2012 completion total. Alongside that small addition, same-term net absorption was 273 units. The year’s final delivery, the 240-unit Gregorie Ferry Landing, completed in Mount Pleasant in July. At 166 units, July-August net absorption did not match the July delivery total. That shortfall, will soon be made up. In addition to Mount Pleasant, the Charleston peninsula, which includes the Elan Midtown project, has proven attractive to development (see Special Real Estate Factors).
With no units delivering in 2011, meanwhile, the vacancy rate has declined sharply. Reis put the second quarter 2012 rate at 5.1%, down 10 basis points for the period, down 150 year-over-year and the lowest on the firm’s records for this market, which begin in 1999. By the end of August, with the July delivery, the rate had inched up to 5.4%; it should be well under 5.0% by year-end, however, as demand stays positive and no new supply delivers. Favorable rates of rent growth in 2011 have been followed by acceleration in 2012. At $801 and $780 per month, asking and effective averages for the second quarter were up 1.0% and 1.2% for the period and were up 2.0% and 2.6% since year-end 2011. July-August followed with increases of 0.6% for both rates.
The year 2012 should remain strong. Reis expects vacancy to be running below 5.0% by year’s close—and, new supply aside, to slip to about 4.0% by the end of 2014. In an upward revision of the previous forecast, hefty gains of 3.5% and 4.6% are now projected for the asking and effective average rents for the current year. A modest slowdown in rent growth is expected for 2013 amid the large volume of new supply.