Highlights> Multifamily fundamentals in Raleigh-Durham got off to a strong

start at the beginning of the year. As the pace of deliveries slowed, rents spiked and vacancy tightened.

> Apartment vacancy declined 50 basis points in the fi rst quarter of 2021, falling to 8.5 percent. Additional tightening is expected in the coming quarters.

> After advancing 1.3 percent in 2020, rents surged in the fi rst quarter. Local asking rents increased 3.1 percent from the fourth quarter reaching $1,263 per month.

> Following an extremely active year in 2020, sales velocity slowed at the start of 2021. In sales that closed during the fi rst quarter, the median price was $157,600 per unit, while cap rates averaged 4.6 percent.

Raleigh-Durham Multifamily Market OverviewThe Raleigh-Durham multifamily market posted a strong start to 2021, with vacancies tightening and rents posting rapid gains. Absorption in the fi rst quarter totaled nearly 1,800 units, tripling the pace that was recorded during the same period in 2020. Demand growth is being sparked by the local labor market, with high-profi le employers expanding in the area. Raleigh-Durham attracted leading technology and life science companies throughout the pandemic, with signifi cant expansions including Google, Fujifi lm, Amazon, Eli Lilly, Bandwidth, and GRAIL. These developments will create thousands of new jobs and support renter demand over the next few years.

Renter Demand Fueled by Ongoing Business Attractions

M A R K E T R E P O R T | 1 Q / 2 0 2 1

Raleigh-DurhamMultifamily

N O R T H M A R Q . C O M

Market Fundamentals

Vacancy ...................................................................... 8.5%

- Year Over Year Change ....................................... +60 bps

Asking Rent ..............................................................$1,263

- Year Over Year Change .......................................... +3.9%

Transaction Activity

Median Sales Price Per Unit (YTD) ........................$157,600

Cap Rates (Avg YTD) .................................................. 4.6%

Construction Activity

Units Under Construction ...........................................5,268

Units Delivered YTD ......................................................789

Q1 Snapshot Raleigh-Durham Market

After a wave of newer assets traded in 2020, the Raleigh-Durham investment market returned closer to more normalized conditions during the fi rst quarter. Approximately 40 percent of the transactions that closed in 2020 involved buildings that were built after 2015, which caused a spike in pricing. The mix of properties that sold during the fi rst quarter included some older Class B and Class C properties, which brought the median price closer to 2018 and 2019 levels. Cap rates to start 2021 were nearly identical to levels recorded in 2020, despite the different mix of properties that sold.

Employment> The Raleigh-Durham labor market is recording one of the steadier

recoveries in the country. During the fi rst quarter of 2021, employers added 8,000 net jobs, and 75 percent of the pandemic-related cuts have now been recovered. Total employment is down just 2.4 percent from one year earlier.

> At the end of the fi rst quarter, Google announced plans to create a Cloud engineering hub in Durham, bringing more than 1,000 new jobs into the area over the next several years. Google will initially sublease space downtown but will search for a complex for the company’s eventual full-time home.

> The Raleigh-Durham area is a leader in the biotechnology industry. Fujifi lm Diosynth Biotechnologies recently chose Holly Springs for its next manufacturing facility. The new facility will include an investment of nearly $2 billion and create approximately 725 jobs with an average annual salary of around $100,000. The complex is scheduled to be completed by 2025.

> Forecast: The Raleigh-Durham area’s educated workforce will continue to result in high-wage job growth over the next several years. Total employment in Raleigh-Durham is forecast to expand by roughly 3 percent in 2021, an addition of 28,000 net jobs.

Vacancy> After rising in 2020, the local vacancy rate tightened to start

this year, as absorption gained momentum. Apartment vacancy declined 50 basis points in the fi rst quarter of 2021, fi nishing at 8.5 percent.

> Year over year, vacancy in Raleigh-Durham has increased 60 basis points. The rise recorded in 2020 was fueled by supply-side pressures.

> While vacancy in Class A units has trended higher in response to new development, the rate outside of the top tier is improving. The combined vacancy rate in Class B and Class C units is 6.6 percent, 60 basis points lower than one year ago.

> Forecast: The pace of construction is forecast to slow in 2021, allowing healthy leasing activity to result in tightening vacancy. The rate is expected to fi nish 2021 at 7.6 percent, 140 basis points lower than the rate at the end of 2020.

N O R T H M A R Q . C O M / M U L T I F A M I L Y

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N O R T H M A R Q I N V E S T M E N T S A L E S | P A G E 2

Apartment vacancy declined 50 basis points in the fi rst quarter of 2021 to 8.5 percent

Google announced plans to create a Cloud engineering hub in Durham

Employment Overview

Vacancy Trends

-8%

-6%

-4%

-2%

0%

2%

4%

6%

-80

-60

-40

-20

0

20

40

60

1Q16

3Q16

1Q17

3Q17

1Q18

3Q18

1Q19

3Q19

1Q20

3Q20

1Q21

Year-over-Year Employm

ent ChangeYear

ove

r Yea

r Job

s Add

ed (0

00s)

Number of Jobs Annual Change

Sources: NorthMarq, Bureau of Labor Statistics

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

1Q16

3Q16

1Q17

3Q17

1Q18

3Q18

1Q19

3Q19

1Q20

3Q20

1Q21

Vaca

ncy

Rate

Sources: NorthMarq, CoStar

Rents> After recording a modest rise in 2020, rents in Raleigh-Durham

surged to start the year. Asking rents rose 3.1 percent in the fi rst quarter, reaching $1,263 per month.

> The sharp rise at the beginning of 2021 pushed the region’s year-over-year rent increase to 3.9 percent as of the fi rst quarter. Local rent growth averaged 3.8 percent from 2015 to 2019.

> Asking rents in the Class A segment rose 3.2 percent in the fi rst quarter, reaching $1,467 per month during the fi rst quarter. Class A rents totaled $1.52 per square foot, per month topping $1.50 per square foot, per month for the fi rst time.

> Forecast: With rental rates spiking to start the year, the Raleigh-Durham market is on pace for a strong year of rent increases. Asking rents are forecast to advance by more than 5 percent, approaching $1,300 per month by the end of 2021.

Development and Permitting> In the fi rst quarter of 2021, the pace of deliveries slowed, and

nearly 800 units in Raleigh-Durham were brought online. During 2020, more than 7,500 apartment units were completed, the highest annual total on record.

> The construction pipeline has thinned following the robust year of apartment deliveries. Projects totaling nearly 5,300 units were under construction at the end of the fi rst quarter, down 43 percent from one year earlier.

> Developers pulled permits for nearly 2,500 multifamily units during the fi rst quarter, up 35 percent from the same period one year earlier. Ongoing population growth and business attraction will continue to spark new development.

> Forecast: After peaking in 2020, apartment construction will slow this year. Developers are forecast to complete approximately 4,500 units during 2021, the lowest annual total since 2015.

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N O R T H M A R Q . C O M / M U L T I F A M I L YN O R T H M A R Q I N V E S T M E N T S A L E S | P A G E 3

Projects totaling 5,300 units were under construction at the end of the fi rst quarter

Rent Trends

Development Trends

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2015 2016 2017 2018 2019 2020 YTD 2021

Com

plet

ions

(uni

ts)

Sources: NorthMarq, CoStar

Asking rents rose 3.1 percent in the fi rst quarter, reaching $1,263 per month

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

$900

$1,000

$1,100

$1,200

$1,300

1Q16

3Q16

1Q17

3Q17

1Q18

3Q18

1Q19

3Q19

1Q20

3Q20

1Q21

Year-over-Year Rent ChangeAski

ng R

ent p

er M

onth

Per Month Annual Change

Sources: NorthMarq, CoStar

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Cap rates held steady and averaged 4.6 percent in the fi rst quarter

Multifamily Sales> In the fi rst quarter of 2021, the pace of investment activity

slowed from heightened levels recorded at the end of last year. The bulk of the sales during the fi rst quarter involved properties in Raleigh and Cary.

> After a robust year in 2020, pricing dipped at the beginning of the year. The median price in the fi rst quarter was $157,600 per unit, down 23 percent from the 2020 median price. The decline is largely the result of a larger share of Class B and Class C assets changing hands in the fi rst few months of the year.

> While prices fell, cap rates held steady and averaged 4.6 percent in the fi rst quarter. Cap rates in Raleigh-Durham gradually trended lower from 2015 to 2020.

M U L T I F A M I L Y S A L E S A C T I V I T Y

Property Name Street Address Units Sales Price Price/Unit

Brook Arbor and Old Raleigh Multiple Addresses, Raleigh and Cary 530 $104,000,000 $196,226

University Ridge 3611 University Dr., Durham 350 $59,500,000 $170,000

Solis Alston 5110 Alston Glen Dr., Cary 240 $59,400,000 $247,500

The Pointe at Heritage 1747 Alexander Springs Ln., Wake Forest 260 $38,980,000 $149,923

Bellevue Mill Apartments 206 S Nash St., Hillsborough 112 $18,500,000 $165,179

Recent Transactions in the Market

Investment Trends

0%

1%

2%

3%

4%

5%

6%

7%

$0

$30

$60

$90

$120

$150

$180

$210

15 16 17 18 19 20 YTD 21

Average Cap Rate

Med

ian

Pric

e pe

r Uni

t (00

0s)

Price per Unit Cap Rate

Sources: NorthMarq, CoStar, Real Capital Analytics

Looking AheadThe multifamily market in the Raleigh-Durham area is forecast to strengthen through the remainder of this year. While new construction outpaced renter demand in 2020, that was a function of two forces: a record-high level of deliveries and a moderating pace of absorption due to the COVID-19 outbreak. Looking ahead to this year, the competitive threat from new development will ease, and renter demand should rebound as economic momentum builds at an accelerating pace. The results will be a vacancy rate that retreats closer to levels from 2018 and 2019, and rents that post above-average gains.

Investors have been active in the Raleigh-Durham market for the past several years, a trend that should continue in 2021. Transaction activity got off to a more gradual start in 2021 but is expected to gain momentum as local property performance strengthens in the coming quarters. Cap rates have compressed in recent years—including in 2020—but have leveled off year to date. Some of that steadying is likely a result of rising interest rates and a mix of older, lower-tier properties changing hands. Fluctuations in fi nancing conditions will likely infl uence the direction of cap rates through the remainder of 2021.

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Rent Forecast

Vacancy Forecast

Employment Forecast

Construction & Permitting Forecast

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

2013 2014 2015 2016 2017 2018 2019 2020 2021*

Year-over-Year Change

Net

Em

ploy

men

t Cha

nge

Jobs Gained/Lost Annual Change

* Year End ForecastSources: NorthMarq, Bureau of Labor Statistics

0

2,500

5,000

7,500

10,000

2013 2014 2015 2016 2017 2018 2019 2020 2021*

Perm

its/U

nits

MF Permits Completions

* Year End ForecastSources: NorthMarq, Census Bureau, CoStar

4%

5%

6%

7%

8%

9%

10%

2013 2014 2015 2016 2017 2018 2019 2020 2021*

Vaca

ncy

Rate

* Year End ForecastSources: NorthMarq, CoStar

0%

2%

4%

6%

8%

10%

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400

2013 2014 2015 2016 2017 2018 2019 2020 2021*

Year-over-Year Rent Change

Aver

age

Aski

ng R

ent

Asking Rents Annual Change

* Year End ForecastSources: NorthMarq, CoStar

R A L E I G H - D U R H A M M U L T I F A M I L Y M A R K E T R E P O R T | 1 Q / 2 0 2 1

About NorthMarqAs a capital markets leader, NorthMarq offers commercial real estate investors access to experts in debt, equity, investment sales, and loan servicing to protect and add value to their assets. For capital sources, we offer partnership and fi nancial acumen that support long- and short-term investment goals. Our culture of integrity and innovation is evident in our 60-year history, annual transaction volume of more than $16 billion, loan servicing portfolio of more than $65 billion and the multi-year tenure of our nearly 600 people.

For more information, contact:

Jeff GlennMANAGING DIRECTOR – INVESTMENT SALES919.322.4769 jglenn@northmarq.com

Andrea HowardMANAGING DIRECTOR – INVESTMENT SALES704.595.4280ahoward@northmarq.com

Allan LynchMANAGING DIRECTOR – INVESTMENT SALES704.595.4277alynch@northmarq.com

Todd CrouseSVP, MANAGING DIRECTOR – DEBT & EQUITY919.781.1811 tcrouse@northmarq.com

David VinsonVICE PRESIDENT – DEBT & EQUITY919.322.4767 dvinson@northmarq.com

Trevor KoskovichPRESIDENT – INVESTMENT SALES602.952.4040 tkoskovich@northmarq.com

Pete O’NeilDIRECTOR OF RESEARCH602.508.2212poneil@northmarq.com

Copyright © 2021 NorthMarq Multifamily, LLC.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

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