Despite stiffening market headwinds, demand for multifamily remains strong in South Carolina.
With an overall national housing shortage and a strong trend of people relocating from large, expensive metro areas to smaller, more affordable metros — especially Sun Belt markets such as South Carolina — it’s a safe bet that multifamily will maintain its relatively inflation-resistant appeal and strong fundamentals for some time.
Indeed, with the state’s economy continuing to outperform most states and people moving here in record numbers, South Carolina’s short term should not only remain stable, but its long-term prospects look bright, noted South Carolina Realtors Association President Nick Kremydas.
“I believe we're seeing the South Carolina market normalize, but I don't think this cooling off period will last long,” Kremydas said. “Inventory is still at a historical low. Pending contracts are on the rise, meaning we're going to see some pent-up demand unleashed on the market in the late spring-summer time frame.”
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Enthusiasm could dampen if mortgage interest rates continue to rise above 7%, but current data shows activity picking up in the second half of the year, which should position South Carolina for a strong 2024, Kremydas said.
Multifamily construction boomed nationally in 2022, up an estimated 15% from the previous year and exceeded a 500,000 annual pace, the first time since the Great Recession, according to the National Homebuilders Association. This, too, has cooled in 2023, but while the number of new multifamily projects started is declining due to various market headwinds, new deliveries are still in the pipeline.
In South Carolina, the number of building permits for multifamily projects continues to exceed pre-pandemic levels, according to the SCRA. Higher interest rates are probably going to cause some tapping of the brakes, but again, this seems to be more normalization than correction.
Rusty Porter, executive vice president of Preconstruction Services and Business Development for C.F. Evans Construction, said the company has not experienced significant slowdown on multifamily projects. This year will probably see a little less activity than last year but that seems to be more of a case of the market normalizing rather than significant contraction.
“We’ve seen a couple that will probably start in fourth quarter, but none that have stopped in their tracks,” Porter said.
Demand for rental property should remain significant for some time. For example, according to a recent market forecast by Redfin, the U.S. median home sale price is projected to fall 4% to $368,000 in 2023, the first annual decline since 2012. Historically high mortgage rates and increased single-family home prices caused the national affordability gap to double in 2022. So, even as economic headwinds ease, continued barriers to homeownership will most likely direct more people to apartments, as well as encourage present tenants to rent for longer periods than they may have planned.
According to Zillow, the South Carolina rental market is cooling. Median rents in the state are about $277 less, or 13% lower, than the national median. However, the average rent price has grown by 6.94% year-over-year in January 2023. The median rent for all bedrooms and all property types in South Carolina is $1,818 and has increased by $83 compared to the previous year. This is based on 4,462 rentals available as of January 2023 in South Carolina.
In Charleston, the market continues to benefit from employment and median household income growth in recent years, as well as net migration, according to a recent Berkadia market report. Indeed, Berkadia forecasts net migration to be around 6,800 people in 2023, as continued employment growth attracts new residents. Several corporate relocations and expansions are taking place in 2023, with a total investment of $112 million and the creation of 630 new jobs.
According to Berkadia, annual net absorption should continue to ramp up this year in Charleston, with leasing activity expected to trail the 3,324 new units slated to be delivered this year. More than half of these new units will be in the Downtown/Mount Pleasant/Islands submarket; indeed, the Downtown/Mt. Pleasant area is expected to command a 31.1% premium to live compared to West Ashley. As area-wide inventory growth should stay in-line with the five-year average, occupancy is projected to average 94.2% by the end of this year, which, while down 50 basis points year over year, is only slightly lower than the five-year average of 94.%.
In Columbia, some 699 new units were delivered in 2022, yet the occupancy rate remained stable at 93.8 percent and monthly asking rental rates increased to $1,141 per unit, according to Colliers.
Like Charleston, the Greenville metro, which has seen an increase of more than 130,000 people since 2010, continues to benefit from the trend of people leaving high cost, large metro areas for smaller, more affordable metros — particularly those in Sunbelt areas, according to Berkadia. Also, because of continued multifamily investor interest in tertiary metros, Greenville’s apartment inventory has kept pace with its population growth. According to a recent market report by Berkadia, some 4,050 new apartments are on track to be completed in 2023, which more than doubles new units delivered in 2022 in the Greenville metro. And new inventory will continue to be needed since the prime renter age group cohort is forecast to grow 5% over the next five years, nearly doubling the projected national growth rate of 2.6%. Indeed, the Greenville metro is expected to experience its highest annual net absorption on record this year.
Nonetheless, occupancy levels are forecast to revert to historical average of 94.4% by the 4Q 2023 due to supply pressure. Employment has surpassed pre-pandemic levels and is expected to reach over 445,000 jobs by year-end 2023, which further increases demand.
One important factor contributing to employment growth, say those in the know, is the expected completion of Greenville’s new administrative building in 2023. This $1 billion investment in downtown will add 3.5 million square feet of office, residential, and commercial space, as well as 5,500 permanent jobs. The improving economy should contribute to an increase in median household income. The rise in income combined with moderating rent growth is expected to keep the rent share of wallet at 24.2%.
Jim Tatum is a contributing writer for SC Biz News.