Commercial Investment Real Estate Summer 2022 | Page 25

INCREASING INTEREST outsized construction activity that could derail returning momentum for rent growth results .”
And in fact , says NMHC ’ s Bruen , during the pandemic , “ there was a shift in demand away from smaller units — one-bedrooms and studios — in the most expensive coastal markets and a shift toward affordable markets , especially in the Sunbelt . In 2021 , we started to see those coastal markets recover , and at this point it ’ s beyond recovery — really , everywhere it ’ s strong .”
Demographics play a role in determining a market ’ s appeal as well . StorageCafe , an online storage space marketplace , surveyed more than 3 million renters ’ applications in 257 markets to determine patterns of net renter migration ( a city ’ s inbound minus outbound residents ). The study found that the Dallas suburbs attracted the most out-ofstate applicants . These cities , dubbed “ feeder cities ,” include Irving and Lewisville , and offer good space for affordable prices , employment opportunity , and proximity to Dallas attractions .
While other top markets included other Sunbelt locales , a few surprises included the Great Plains states . “ Traditionally losing ground to more hyped states on the East and West coasts ,” the study noted , “ U . S . prairie states , such as North Dakota , South Dakota , and Nebraska , have been intent on amping up their appeal in recent times . The Dakotas both saw double the number of incoming renters than outgoers , with Maine the only other state registering the same high figure .” The study adds that Sioux Falls , S . D ., in fact , offered the country ’ s highest ratio of inbound-versus-outbound residents at almost four to one .
Post-pandemic , many younger renters are striking out on their own and , according to Rent Cafe , activity among Gen Z renters has increased by 21 percent this year , the largest boost among any age group . These renters are targeting large urban areas that provide employment , diversity , and cultural and social activities , with top trending cities including San Francisco , New York , Philadelphia , Boston , and Arlington , Va . One upand-coming hot spot : Jersey City , N . J ., which features new construction and proximity to Manhattan with relatively affordable prices .
Quality of life is also an essential consideration for a market ’ s appeal . Chevaillier notes that in Seattle she ’ s observed the popularity of mixed-use neighborhood developments with multifamily buildings , along with retail , entertainment , outdoor space , and parks . “ Those micromarkets can be very strong and in high demand . They ’ re very attractive to tenants .”
Location can also determine which multifamily sectors have the strongest rent growth . According to recent CBRE statistics , rents for Class C multifamily properties have outpaced Class A and B properties nationally , although the balance is tipped because of larger coastal markets such as L . A ., Washington , D . C ., and Boston , where , says CBRE , renters compete for a limited supply of value-add Class C units . In Sunbelt areas , on the other hand , Class A and B rents are growing more quickly .
One other post-pandemic fallout for multifamily : Work from home . During COVID-19 lockdowns , home-based workers sought out larger alternatives to studios and small one-bedroom apartments .
SUSTAINABILITY AND LIVABILITY Multifamily developers and owners are also increasingly needing to factor in costs for sustainability features in new construction . A recent Cushman & Wakefield study found that LEED-certified multifamily properties consistently command higher rents than comparable noncertified properties — about 3 percent higher as of 4Q2021 . While the study showed that such properties often have lower occupancies , the rent premium more than compensated .
Sustainable features may involve higher upfront costs for developers , but they can save money in the long run , says Caitlin Sugrue Walter , NMHC ’ s vice president for research . “ It varies by situation . Our recent resident-preferences survey that showed there are a lot of technology features that residents find value in and expect to have .” But , she adds , these features have also come up against supply chain delays . “[ Computer ] chips for example , are still a big problem . We ’ re hopeful it will get better , but if you have key fob entry , obviously that ’ s a problem both for new construction and operations . You either have to pay more or come up with some other solution .”
The benefits of sustainable technologies can become a challenge when they ’ re mandated through municipalities ’ energy efficiency standards , says Chevallier . That can drive up construction costs and affect affordable housing . “ Our developer clients prefer carrots over sticks ,” she says . “ Offer up these technologies , let us adopt them , and let the market dictate .”
One other post-pandemic fallout for multifamily : Work from home . During COVID-19 lockdowns , home-based workers sought out larger alternatives to studios and small one-bedroom apartments . Such units were affordable as they were farther from central business districts , but since renters didn ’ t need to commute , they were appealing . “ That was definitely one of the drivers behind that shift toward larger units and more affordable markets ,” says NMHC ’ s Bruen . “ But as the market has recovered , it ’ s unclear where that ’ s going to have longerterm implications .”
In Seattle , says Chevaillier , “ before the pandemic we had committed to building a lot of smaller efficiency or studio units . During the pandemic , we saw that when tenants were faced with being locked down in their 300-sf efficiency units , the walls got pretty small . So , we saw demand for one-bedrooms plus den , or two- and threebedrooms . Now we ’ re starting to see that swing the other way again . But the reality is that tenants are going to be working from home in some capacity more than they were before , so thoughts around space planning have to reflect that . Maybe there ’ s coworking space within buildings or some other type of third place .”
She adds that those in the multifamily space will need to put more importance on creating a sense of place for renters . “ Where people want to live and work has a lot to do with where they have the ability to socialize and enjoy recreational amenities ,” she says . “ The more that apartment projects can be thoughtful of that full picture , we ’ ll be much more successful , as workers get back to work and want to be in locations that have those kinds of amenities . Those assets will be more successful than those who put their stake out in the middle of nowhere and expect people to drive there . That ’ s what ’ s really changed .”
Sarah Hoban A business writer based in Chicago
CIREMAGAZINE . COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 23