Charlotte, North Carolina
Queen City Real Estate Ramps Up in 2021
by Carole VanSickle Ellis
Charlotte, North Carolina, is probably best known for banking. Despite trailing 21 other U.S. cities in size and falling firmly into the “second-tier” or 18-hour city categories in economic parlance, the Queen City is the second-largest banking center in the United States (behind only New York City) and has been successfully luring major employers, including Fortune 500 behemoths like Honeywell, into the metro area for years. The results of this dedicated, pro-business approach in Charlotte kept the local economy on solid ground during much of the 2020 COVID-19 lockdowns and appear quite likely to solidify the city’s standing as a thriving, recession-insulated market in 2021.
“Charlotte is a hot market for investors whether they want to renovate and flip, buy to hold and rent, or invest in multifamily properties,” said Marco Santarelli, founder and CEO of Norada Real Estate Investments. “Even with the short-term impact of the ongoing global pandemic that impeded real estate sales activity in the entire nation, in the long term, the Charlotte real estate market remains strong.” Santarelli added he expects housing demand in Charlotte to continue to outpace supply thanks to strong demographic momentum as young professionals move to the area for work, a high quality of life, relatively affordable cost of living, and a wave of conscientious redevelopment.
A Near-Perfect Combination for Sustained Growth
The Charlotte metro boasts the unique combination of being an attractive place to live, an attractive place to work, an attractive place to start or own a business, and an attractive place to retire. This is likely why Charlotte has grown faster over the past year than almost every U.S. city (trailing only Phoenix, San Antonio, Fort Worth, and Seattle). The Charlotte housing market ranked ninth on PriceWaterhouseCooper’s “U.S. Markets to Watch in 2019” and fifth in 2020 on Forbes’ list of “Best Cities for Jobs”. 2020 also brought more accolades from U.S. News & World Report, including a sixth-place spot on the “Best Places to Live” list and a 23rd-place ranking on the “Best Places to Retire” list. Both of these rankings represent significant leaps upward, 14 spots and nine spots, respectively.
“At the top of this year’s Best Places to Live rankings, we see a combination of metro areas that…offer a balance between cost and quality of living,” explained Devon Thorsby, real estate editor at U.S. News & World Report. Regarding the city’s sixth-place ranking on her publication’s “25 Best Places for Young Professionals” list, Thorsby cited competitive annual salaries, the city’s growing population, and “new construction in the area” including more stores and restaurants “attracting downtown visitors” as attractions for the city’s burgeoning millennial population. Investors should note that although the ongoing COVID-19 global pandemic and associated health policies have affected Charlotte’s retail and restaurant scene, the city has made notable efforts to keep retail and restaurants open, albeit at limited capacity. The state remained at a state-delineated “phase 3” level of operation and imposed and extended a statewide curfew from 10 p.m. to 5 a.m. for multiple months.
“I think [Governor Roy Cooper] is doing everything in his power not to shut us down,” said one Charlotte restaurant owner after Cooper extended phase 3 restrictions for a third time at the end of December 2020. The owner admitted gross revenues are down for his restaurant by 30 percent since he reopened in June 2020, but noted that weekends have been especially busy since he reopened. Charlotte’s relatively short winter season and humid, subtropical climate are conducive to outdoor eating and entertainment, a boon during a period when consumers are encouraged to socially distance and gather outside or not at all.
Strong Fundamentals in the Queen City
Although North Carolina was historically known for tobacco and textiles, Charlotte has been a force to be reckoned with in the financial and banking industries for years. Bank of America has been headquartered in the Queen City since 1998, when NationsBank and BankAmerica merged to form today’s BOA (see sidebar). Thanks to low taxes, pleasant weather, and what FIG Partners bank analyst Christopher Marinac describes as “progressive banking culture,” Charlotte is now home to Wells Fargo and Bank of America headquarters. BB&T and Suntrust (now Truist) moved their combined headquarters to the city in 2020.
“Banking really is an ecosystem,” Marinac noted. “You see it in Charlotte pretty clearly.”
Wells Fargo head of digital business development, Jonathan Hartsell, cited his bank’s presence in Charlotte as, in part, the result of a decision to work together with other banking institutions to “have a bigger impact”. He explained, “Growing fintech talent and resources within the region benefits all of us as we seek to accelerate innovation in our industry.”
With more than two decades of major banking activity and a growing presence in the biotechnology, energy, and information technology (IT) sectors, Charlotte is perfectly positioned for 2021. While other areas of the country lost employers, jobs, and population, Charlotte welcomed two new Fortune 500 companies (Honeywell and Truist), retained 18 Fortune 1000 companies in the area, kept unemployment in the mid-range single digits (between 6 and 7 percent), and ranked 7th on SmartAssets’s “Best Cities to Work from Home” list. Even prior to the pandemic, Charlotte already was attracting companies and residents who valued the ability to work productively from home, making it an extremely attractive market in the pandemic and post-pandemic economies.
The Charlotte economy is rounded out with a variety of other sectors, including energy-oriented industries that have earned the city the nickname, “The New Energy Capital”. Charlotte also serves as a major distribution hub for the east coast and is home to the NASCAR Hall of Fame. Although NASCAR’s corporate headquarters are located in Daytona Beach, Florida, nine in 10 NASCAR teams operate within 75 miles of Charlotte.
Dedicated Support for Local Employers Large & Small
Charlotte’s determined support of local businesses, both large and small, has played a huge role in the city’s ability to attract and retain employers. During 2020, when national unemployment rates jumped to nearly 15 percent, the Bureau of Labor Statistics (BLS) reported Charlotte kept its unemployment closer to 13 percent and, furthermore, had driven that rate down to nearly 6 percent by the end of 2020.
“To partly off-set the effects of the health crisis, $30 million of the federal coronavirus aid bill was set aside for small businesses [in Charlotte],” noted Yardi Matrix senior associate editor Laura Calugar in the Yardi Summer 2020 report on the city. “Large investments are also planned for the metro,” she added, making particular note of healthcare administration company Centene, which plans to spend $1 billion on a 1-million-square-foot east coast headquarters in Charlotte starting in 2021. That move alone is expected to generate 6,000 jobs.
“The Queen City has been diversifying its economy in the last decade, which has shielded it, to some extent, from the effects of the health crisis,” Calugar said. “Charlotte’s business appeal is evident by several relocations to the area by companies including Honeywell and Truist Bank.” Charlotte boasts a total of 9 Fortune 500 companies and 18 Fortune 1000 companies, and is likely to continue to attract this caliber and scale of employer thanks to generous tax initiatives and highly affordable costs of living – particularly when compared to the west coast and northeast.
“As companies announce plans to allow employees to permanently work remotely, high-tax cities will continue to see a talent drain as people relocate in search of cities with a lower cost of living,” Jarred Kessler, co-founder and CEO of EasyKnock, told Forbes. He predicted “second-tier cities like…Charlotte” would experience residential building booms in 2021, and suggested alternative financing options would likely expand to “provide additional flexibility in times of crisis”.
An Attractive 2021 Market for Rental Owners & Developers
Real estate investors considering investing in the Charlotte area are likely to find the city friendly to investors and particularly well-positioned for rental owners and real estate developers. WalletHub ranked Charlotte as one of the best cities for renters in 2021 due to its thriving rental market, relative affordability, and quality of life. Recession-resistant employment sectors like IT and biotechnology also make the market appealing. At the end of 2020, roughly 40 percent of all households in Charlotte were renter-occupied.
Although eviction moratoriums were in place in Charlotte and the rest of North Carolina during early and mid-2020, the only current eviction policies in effect are those imposed by the U.S. Centers for Disease Control (CDC) orders that will likely expire early in 2021. North Carolina has consistently allocated funds for rental assistance from federal stimulus monies, which has created an environment in which many landlords say they are able to continue providing stable housing without facing mortgage delinquency themselves.
Kim Graham, executive director of the Greater Charlotte Apartment Association, observed that the emergency assistance package passed in late December last year was “especially helpful for Charlotte-area landlords” due to provisions in the legislation that targeted cities with population sizes similar to Charlotte’s.
“The federal government understood and heard that we can’t have a moratorium on evictions without rental assistance going directly to landlords,” Graham told a local newspaper. “I think that’s great.”
With its recession-resistant economy, growing population, and attractive climate, Charlotte is certainly in a good position to continue growing in 2021, and that growing population is going to need more housing. In fact, according to Realtor.com, it is the best-positioned market for growth in the southeastern United States in 2021.
“As a devastating 2020 comes to an end, all factors are indicating a steady expansion is ahead,” wrote Barings Professor of Financial Economics at the Belk College of Business John Connaughton in December 2020 in his Barings/UNC Charlotte Economic Forecast. “2021 represents the first full year of an economic comeback.”
Sidebar 1:
Fortune 500 and Fortune 1000 Companies Headquartered in Charlotte, North Carolina
Charlotte, North Carolina, and the surrounding region are home to nine Fortune 500 companies and 18 Fortune 1000 companies.
Charlotte’s Fortune 500 Companies
- Bank of America
- Lowe’s
- Honeywell
- Duke Energy
- Nucor
- Truist
- Sonic Automotive
- CommScope
- Brighthouse Financial
Charlotte’s Fortune 1000 Companies
- Bank of America
- Lowe’s
- Honeywell
- Duke Energy
- Nucor
- Truist
- Sonic Automotive
- CommScope
- Brighthouse Financial
- Domtar
- Coca-Cola Consolidated
- Sealed Air
- JELD-WEN
- Dentsply Sirona
- Albermarle
- Curtiss-Wright
- Ingersoll-Rand
- SPX Flow
Sidebar 2:
The Queen City and Bank of America
Charlotte is one of the biggest financial centers in the United States, only trailing New York City, at present, and occasionally falling into third place behind San Francisco (although never for long). Many people hailing from outside the southeastern United States wonder how a relatively small, southern city became such a powerhouse in the financial industry. The credit goes, in large part, to Bank of America, which has been part of Charlotte since the founding of BOA ancestor, Commercial National Bank, in 1874.
According to the Charlotte Museum of History, Commercial National Bank was founded in Charlotte with just $50,000 in equity and $200,000 in deposits. During the recently ended Civil War, every bank in the Carolinas had failed. Commercial National Bank sought to fill the void in banking in the area, a role that was desperately needed since Charlotte was already emerging as a rail center and textile hub. However, Commercial National Bank remained relatively small for the next 70 years. In the late 1950s, the institution merged with another Charlotte banker, American Trust and Security National of Greensboro. The two institutions renamed themselves North Carolina National Bank (NCNB) and continued an aggressive strategy of mergers and growth that would eventually lead to today’s permissive banking policies in North Carolina that make Charlotte such an attractive financial center today.
By 1982, NCNB had become NationsBank. In 1998, NationsBank acquired BankAmerica, which had been based in San Francisco, and kept the headquarters of the new Bank of America firmly in Charlotte. Bank of America was the first coast-to-coast bank, and its presence in Charlotte, first as a coast-to-coast institution and then as an international banking giant, cements the Queen City’s place as a leading financial center.
Sidebar 3:
Charlotte Takes Top Rankings Across the Board
Charlotte, North Carolina, is unique because it appeals to residents (and, by extension, real estate investors) across a wide variety of professional and economic demographic categories. Here is a subsection of recognitions the city has received:
- Best Places for Young Professionals in 2020-2021 (6th, U.S. News & World Report)
- Most Important U.S. Market to Watch in 2019 (9th, PriceWaterhouseCooper)
- Best Places to Retire in 2020-2021 (23rd, U.S. News & World Report)
- Best Real Estate Market Positioned for Growth in 2021 (1st, Realtor.com)
- Fastest-Growing Cities in 2020 (5th, WalletHub.com)
- Fastest Economic Growth in the U.S. 2019 (16th, suburb of Concord, WalletHub.com)
- Best Real Estate Markets in 2021 (6th, WalletHub)
- (North Carolina) Best States to Work from Home (9th, WalletHub)
- Top Metros for Optimistic Small-Business Sentiment (5th, SmartAsset.com)
5-YEAR RENTAL PRICE APPRECIATION
In the last five years, 3-bedroom single-family rental (SFR) average rental prices over the Charlotte MSA have increased by 31.5%, ranking the metro 20th place for five-year rental price appreciation.
Five-year rental price increases have risen the most in Charlotte within the Interstate 485 loop, also Concord and Gastonia with 30% to 40% 5-year increases (dark green).
The sage green areas have a moderate 5-year increase of 15% to 25%. The remaining ZIP codes
in the MSA (white) have only mild rental price appreciation under 15%.
RENT-TO-INCOME
The Charlotte MSA had a median household income of $66,400, ranking 99th highest amongst MSAs.
Three-bedroom SFR rent-vs-income (R/I) ratio has been rising quickly due to overall rental increases in the MSA, yet the current R/I of 28.2% is still more affordable vs. the national average of 32%.
Dark-blue areas reflect highest R/I ratios over 32% to 40% in central Charlotte, Gastonia. Light-blue areas around have affordable R/I between 25% to 30%. White colored areas for the east and south areas
of the market have the lowest R/I below 25%.
YIELDS
Median SFR home prices are currently $270,000, gaining 46% in the last five years.
Gross Rental Yields (GRY), excluding expenses, across the top 200 U.S. markets average 8.6%.
The weighted average GRY in the Charlotte MSA has a slightly better average yield of 9.8%.
Dark purple sections represent yields over 12%. Light purple areas have moderate yields between 8% to 12%. Lastly, white shaded areas have yields of less than 8.
