With a series of recent high-profile economic development wins, Charlotte, North Carolina, has affirmed its status as a market to watch for real estate investors.

Placing fourth in the rankings for best overall real estate prospects in Emerging Trends in Real Estate® 2020, co-published by ULI and PwC, the Queen City recently landed the corporate headquarters of Honeywell International, as well as Truist, the bank that will result from the merger of BB&T and SunTrust. The city also benefited from in-market expansions, including a 2,000-employee tech center announced by home improvement retailer Lowe’s and a 400-job expansion announced by Microsoft.

Panelists at a recent ULI Charlotte event acknowledged that the city has much to be thankful for as it heads into 2020, but they also noted the need to protect Charlotte’s quality of life and relative affordability, which have been key to attracting economic development and outside investment.

“[Affordability] is one of the things that drives these companies to come to Charlotte,” said Julie Porter, president of the Charlotte-Mecklenburg Housing Partnership, a nonprofit development firm focused on housing for low- and moderate-income families. “We need to keep that.”

Because the city’s housing starts aren’t keeping up with its population growth, Charlotte’s housing market is “incredibly strong,” Porter said, but the lack of inventory is pushing prices ever higher; Charlotte ranked second for homebuilding prospects in Emerging Trends. At the end of October, the region had a two-month supply of housing inventory, according to the Charlotte Regional Realtor Association, down 25 percent from a year earlier, and the median sales price had increased by nearly 10 percent to $253,000. Five to six months of housing inventory is generally considered a balanced market.

“There’s a shortage of housing across the spectrum,” Porter said. “We’re still about 34,000 units short of affordable housing for people who earn less than 50 percent of AMI [area median income]. We see those types of shortages continuing.”

The announcement by Lowe’s that it would anchor a new 23-story office tower just outside Charlotte’s central business district in the South End neighborhood underlined the city’s emergence as a destination for technology companies and their employees. Last fall, CompTIA’s 2018 Tech Town Index found that Charlotte was the number-one city for information technology workers, on the basis of job opportunities and cost of living.

“I think in 2020, with our growth in tech talent, we’re really going to see a lot of these small tech companies with rapid growth plans,” said Fran West, who leads business recruitment efforts for the city of Charlotte.

The city needs to continue recruiting tech employees because the demand for talent outstrips what local universities like the University of North Carolina–Charlotte can currently produce, she added.

“How do we do that? By keeping our quality of life really high and our cost of living really low,” she said. “We have to make strategic investments in our infrastructure, our housing, and in the places that talent wants to be because companies are going to chase talent.”

The Charlotte market was ranked third for investment in the industrial sector in this year’s Emerging Trends, with 61 percent of respondents rating it a buy, behind only Austin, Texas, and Washington, D.C./Northern Virginia. Pete Pittroff, a managing director with JLL, said he expects industrial vacancy in the region to approach 5 percent by the end of this year, with rental rate growth up by more than 5 percent on a year-over-year basis.

Though Pittroff said he expects another good year in 2020, he expressed concern about the trajectory of construction costs.

“What happens if construction costs continue to rise and rental rate growth stops?” he asked. “To me, that collision looks a little uncomfortable.”

Rising costs are affecting property owners across all sectors. While Charlotte’s rental rates for retail space remain relatively affordable compared with those in other markets, land prices are putting pressure on landlords to raise those numbers, said Charles Thrift, partner of Charlotte-based Thrift Commercial Real Estate. As a result, property owners are having to bring in tenants from outside Charlotte that are more accustomed to higher rents, he said.

“There are complaints I hear about driving out the local businessperson,” Thrift said. “It is harder to find the local operator that’s going to be willing to step up and pay those rents.”

These challenges are still the byproduct of a healthy local economy, however, and Pittroff said he reminded himself of that when it took him an hour to navigate nine miles (14.5 km) of traffic to his home recently.

“I was riding along thinking, ‘This is awesome,’” he said. “It just means that we’re growing.”

Notes provided by Will Boye of Yellow Duck Marketing