Real Estate - Residential

Vacancy Up, Rents Down In Wilmington Apartment Market, But Fundamentals "still Healthy"

By Cece Nunn, posted Feb 14, 2024
Crews work on building an apartment complex on Oleander Drive in Wilmington in August 2023. (File photo)

On the website for the Amberleigh Shores apartment community in Porters Neck, a banner proclaims, “Now offering 6 WEEKS OFF on all floorplans when you move in by 2/29!”

Such concessions aren’t limited to Amberleigh Shores. They indicate a slight but noticeable shift in the Wilmington area’s apartment market, which has seen an increase in vacancy rates and a decrease in rents in recent months.

“A year ago, there were no concessions whatsoever, and most people were getting rental rate increases for renewals,” said Mouhcine Guettabi, a regional economist based at the University of North Carolina Wilmington, in January. “And so, that’s an indication of something happening.”

According to a Yardi Matrix report about the Wilmington area provided to the Business Journal this month, occupancy rates at apartment communities slipped from 95% in the first quarter of 2023 to 93.5% in the fourth quarter of last year. The Yardi Matrix report stated that average rental rates fell from $1,631 per month to $1,608.

Paul Loukas, partner in and broker in charge of Wilmington-based firm Cape Fear Commercial, keeps a close eye on multifamily industry fluctuations. In addition to multifamily investment sales, Cape Fear Commercial’s sister companies – Cape Fear Development and Construction – develop and build apartment communities throughout the Carolinas. 

“There is certainly some softening in the apartment market,” Loukas said Feb. 12, “but we expect this to improve as the fundamentals are still healthy.”

As always, location makes a difference. Asked whether older versus newer apartments struggle more, Loukas said in an email, “It’s more submarket- and location-specific than age. For example, we definitely saw some softness in the market in Wilmington in Q4 2023; however, we had a robust leasing quarter for our community that is in lease-up in Surf City called Bishops Creek.”

The Cordelia (model apartment pictured below), the largest apartment community under construction in the Wilmington market according to YardiMatrix, is in the midst of attracting tenants. On its website Wednesday, the complex at 4711 Azalea Landing Drive near Target offered new tenants $1,000 off and a renewal rate guarantee program.

The Cordelia holds 426 apartments, from studios to three bedrooms. The apartments range from 767 to 1,568 square feet and are priced from $1,483 monthly to $3,100.

Scott Underwood, a development partner in Woodfield Development, the company building The Cordelia, said the winter had been a little slow for leasing in Wilmington, something he considers typical for the season. “But the last few weeks have shown that there is a lot of demand in the market,” he said on Feb. 9. “For instance, last week, we had 12 leases [signed] at The Cordelia, so we’re really seeing some strong interest and velocity in the market.”

At the same time, “There is no doubt there is extra supply…I think in 2024, you’re going to see some potential for some vacancy changes,” Underwood said.

Still, recent reports elsewhere in the state show apartment complex construction starts going down, he said.

“So we’ll have a period where the supply that’s coming online now will impact, but the units are still needed, especially when starts are going to be down so much going forward,” Underwood said.

In addition to the amenities apartment dwellers have come to expect (dog park, pickleball court, fitness center, pool and others), The Cordelia has the added benefit of being in a desirable area, Underwood said.

“It’s a fantastic location… you’ve got walkability to New Centre [Drive]. The Target expansion is going to bring added benefits to our residents along with all the other retail and restaurants on New Centre Drive. But then you just have such incredible access to MLK [Parkway], getting into downtown quickly, getting over onto college and to UNCW …

“This is a site that checks all the boxes from a location standpoint where it’s incredibly convenient for our residents to live and work and enjoy themselves after work,” Underwood said.

From Cape Fear Commercial’s standpoint, demand is healthy “for the right projects in the right locations,” Loukas said, “but we remain selective and very cautious about new projects.” 

Loukas gave an update on some of his firm’s Wilmington-area projects.

“We are under construction for the Proximity at Carolina Beach and are very bullish on this new mixed-use community. We will be delivering units starting late summer. We are also getting ready to break ground on the Proximity at Watermark [on River Road in Wilmington]. It’s another unique property, on the river with most of the units having river views.”

Loukas stated in the email that he thinks there are still a lot of proposed projects in the pipeline, “so we are carefully studying the market. We think a lot of the proposed projects will not start due to (a) [being] over-designed or (b) the interest rate market and the lack of equity and debt available.  

“Recognizing the development process takes several years, we also believe the current softening presents a great opportunity to start a new project that will deliver in a more favorable period. In contrast, too many starts too quickly could cause trouble like we have seen in other markets such as Myrtle Beach.”

He said Myrtle Beach had a “fair amount” of apartment projects completed last year.

“With so much new supply coming online around the same time, it’s put a lot of strain on the market by way of reduced rents, higher concessions and slower absorption times. Simply put, we believe [the Myrtle Beach market] is currently overbuilt,” Loukas said. “We sold one of our Active Adult Communities (Inspire Coastal Grand in Myrtle Beach) in 2022. We own the land next door and have a permitted market rate deal ready to start. We are on hold waiting for the absorption to catch up with the supply.”

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