ATLANTA — Before March 2020, proximity to major office-based employers was among the major appeals of urban living for potential renters. However, once offices, amenities and local attractions closed, many residents on lockdown in tiny apartments fled urban cores in search of open space — or financial stability, in the case of renters in the service industry — in suburban areas and secondary and tertiary markets.
2020 was the most difficult year for urban multifamily markets, said panel moderator Jordan Brooks, senior market analyst at Carrollton, Texas-based information provider ALN Apartment Data during an educational session at Apartmentalize 2023 in Atlanta Wednesday. But the cores began to bounce back as soon as mid-year 2021, and activity has returned at a slow but steady pace through 2022 and 2023.
Now, more than three years after lockdowns first began, multifamily professionals are wondering what the lingering impact of the pandemic’s “great migration” may be on development paradigms. Moderated by Brooks, three panelists shed light on where the industry is developing new product post-pandemic. Their takeaways include:
While demand hasn’t completely shifted, suburban deals are easier to pencil than urban projects. Carol Enoch, CEO of Oakland, California-based apartment consultancy Enoch & Co., said that the move into secondary and tertiary markets began 10 years ago for developers. Among the main reasons was the high barrier to entry in downtown markets, particularly in terms of cost, regulation, and development time.
“We could not pencil the urban core anymore,” Enoch said. “We already saw opportunities and people shifting housing formations. We were seeing more of a migration toward different areas.” The readiness of these properties for residents migrating out of cities, she said, was a matter of luck.
Existing growth markets didn’t see the same flight from the urban core. Tampa, Florida; Raleigh-Durham, North Carolina and Austin, Texas remained strong through the pandemic, according to Wende Marshburn-Smith, senior vice president of operations at Greensboro, North Carolina-based multifamily firm Bell Partners.
Suburban assets are expected to face competition from single-family rentals. While Lynn Bora, executive vice president of Boston-based WinnResidential, noted that the single-family build-to-rent market is worth watching, “It’s not going to become such a choice that we’re going to stop building buildings,” she said. Enoch added that a lot of money is going into the space, particularly in the Southeast, where there is more room to build.
Former urban renters are bringing their expectations to the suburbs with them. “If you’re looking for a direct line from your urban flight, you have to make sure you have some walkable amenities,” said Enoch. She noted that restaurants, coffee shops and schools within walking or biking distance are among the easiest to make possible in a suburban setting.
On top of that, residents used to living in buildings with concierge-style service will expect similar customer service in their new homes. Enoch said these expectations are possible to meet even in a staff-less building, as long as resident services are readily available when needed.
Properties in the suburban market are mirroring urban product. Many submarkets once defined by garden-style walk-up multifamily properties are now seeing more podium-style new developments. This was a process that began before COVID, according to Enoch, as smaller markets aimed to attract highly educated new residents.
The “amenity race” was already in decline before COVID-19 ground it to a halt. The trend of tiny apartments with large amenity spaces was coming to a close by the onset of the COVID-19 pandemic, having hit its peak in 2017 and 2018, according to Enoch. Developers were already shifting to larger units, smaller amenities and construction in secondary and tertiary markets by 2020, and properties built on this premise delivered at about the time when demand was high.
“[It was] a combination of dumb luck and developers who are really trying to think ahead of the curve,” Enoch said.
