In A New Year, The Multifamily Industry Looks To The Suburbs
Patrick is Founder and CEO of CARROLL, a national real estate firm combining institutional investment capacity with real estate operations.
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If 2020 has taught us anything, it’s that predictions — no matter who they come from — can’t tell you the future. At best, they can give you an idea of what may happen, if everything goes well. For the housing market, especially, people rely on predictions and market forecasts, and yet, the industry also experiences some of the biggest shake-ups. Unforeseen events, from economic factors to natural disasters, can impact the industry and as we all experienced for the first time in our lives — pandemics can also bring widespread disruption.
Following the Great Recession, it wasn’t clear if the housing market would ever right itself — or what it would look like once it did. History has proven time and time again that the housing market is resilient and continues to be one of the most important industries in our economy today.
As we look back at 2020 and forward into 2021, the biggest takeaways I see for the multifamily industry are all based on the market’s ability to meet the times. Here are a few of the ways I see the market transitioning:
The Rise Of Tertiary Suburban Markets
After the Great Recession, urban areas experienced an influx of residents. People were drawn to the amenities and lifestyle. Many multifamily players followed the shift into the city, but there was opportunity to be found in the place left behind: the suburbs.
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What I believe we’re going to see now is an even larger return to the suburb — this time with consumers expecting the same or similar type of living urban areas provide. This is where multifamily properties come into play. There is a draw toward no-maintenance living in areas with more purchase access; this heightens the value of multifamily rentals. An analysis from Apartment List shows in 27 of 30 large metros areas, cities are experiencing slower rent growth than the surrounding suburb. The suburbs have long been the affordable answer to housing needs, but as the move into a work-from-anywhere culture continues, their appeal will continue to grow.
This is important to note for firms, especially those looking at the suburban Sunbelt. With much of my company’s portfolio in this area, I have seen firsthand investors rushing to buy in a typically seller-focused market, which increases competition and drives up prices. It can be a great time to sell in this area, but be wary of overpaying for properties.
Amenities Sell
When social-distancing and quarantine restrictions are lifted, some aspects of life will return to normal, but office life isn’t likely to be one of them. In June, Stanford released research showing 42% of U.S. employees were working from home. Most businesses have already lauded the benefits of remote work and the decrease in overhead by getting rid of fancy downtown offices. Not all companies will remain remote forever, but many will.
This means the home office is going to become exponentially more important. Larger floorplans with flexible layouts and space will be in high demand. This is another appeal of moving to a suburban location: more square foot per dollar. In 2018, there were already signs of suburban preference with 52% of Americans describing their neighborhood as suburban. With many previously living in urban areas and new migration away from cities, many will expect similar walkable amenities and access to outdoor spaces in these new homes, so properties close to drivable employment and entertainment hubs will perform better.
Digital Tours Reign Supreme
In 2018, the National Association of REALTORS® 2019 Home Buyers and Sellers Generational Trends Report showed that millennials represented 37% of home buyers — the largest cohort. One key generational difference to keep in mind is a preference for digital. This applies specifically to the process of both renting and home buying. In an industry where people are making a 12-month decision about how to spend up to half of their income, they often want an in-person experience — and when that isn’t possible, you need to make digital feel personal.
The number of people buying and renting without stepping into the apartment has grown exponentially. This ease of access will continue to be necessary but doesn’t mean the personal touch of a leasing agent or owner is any less important. It’s essential that real estate agents and property management teams take care of the little things and act transparently throughout the entire process — whether in-person or by text.
Get Ready To Make Transactions
I expect 2021 will be an active transactional year. The first five months of 2020 were essentially a wash in the housing market, but it quickly bounced back with record-breaking activity in many markets during the second half of the year. Momentum continues as 2021 begins. The number of buyers and renters will likely increase, and given the relative strength and outperformance of multifamily, I believe allocations are going to increase even more — making the market more competitive.
Pricing and amenities will continue to be paramount, while brand and reputation are the key traits first-time homebuyers and renters look for initially. As many market players did, my company adjusted business plans throughout 2020. The goal was twofold: work with current residents on a personal level to make accommodations during a turbulent time and ensure communities exceeded health guidelines for new residents looking for a place to live. While managing for occupancy versus rent growth is specific to the asset and partners involved, a shift in perspective may be a good measure of success through 2021. For my own firm, it was decided to focus on maximizing occupancy rather than rent growth. From a business standpoint, increasing physical occupancy not only provided homes to residents but also secured returns and maintained a healthy cash flow.
The housing market, although one of the most volatile, is also one of the most necessary. This year has taught the industry many things — but, for me, one of the most important was remaining steadfast in investment principles and strategy, while listening to the needs of each community. That is a guiding principle that will certainly lead toward a successful 2021.
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