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Looking Beyond the Bend – the Future of Apartments

As most renters and apartment owners will testify, good apartments are harder to find and today’s rents are well above levels of just a few years ago. Lots of reasons for this – both increased demand and limited supply. On the demand side, former homeowners who lost their homes to foreclosure or damaged their credit during the downturn are now renting. Millennials who desire mobility, have high student loan balances or don’t have sufficient down payments are also competing for apartments.

Supply is tight because very few apartments were built from 2007-2012 and the cranes in the sky in hip and cool cities nationwide today are basically catching up to the shortfall created during that five-year period. Limited availability of well-located land, entitlement challenges, NIMBYism, shortages of construction labor, escalating lumber and material prices also pinch supply. As a result, practically the only apartments being built are class-A, luxury properties – and many folks can’t afford those.

So what’s a tenant and an apartment investor to do – and what does it bode for the future of apartments? Think ATT – affordability, transportation and technology.

As people on a limited budget know, when the money runs out near the end of the month, tuna fish, peanut butter and mac & cheese may be on the menu for days on end. For penny-pinching apartment dwellers, affordability might mean a longer commute, a smaller pad or doubling up with a roommate. Apartment developers know that trees don’t grow to the sky and 3-7% annual rent growth (which we’ve seen in many markets for the past several years) isn’t sustainable. That explains why many new apartment projects are being designed with 600-750 square foot units, down from 800-1,000 square foot units not long ago. Builders compensate when they can with higher ceilings, larger windows, light paint colors and other tricks to make the units feel more spacious. But smaller footprints translate into lower costs and lower absolute rents – which helps both developers and tenants make the numbers work.

Now, unless you’ve been living in a cave these past few years, you know that Uber and Lyft are ubiquitous. In Seattle, Portland, San Francisco and L.A. a surprising number of young people don’t own a car. In today’s sharing economy, they take the metro or the bus, ride a bike or use a ride-sharing service. Transportation considerations determine where people live and many new apartment projects are being built along transportation corridors or adjacent to light-rail stops. The money folks save by foregoing a car payment, auto insurance, gas and maintenance pays for their light-rail pass, lots of Uber rides and then some – the savings can even help defray today’s higher rents. Oh, and new apartments won’t need as many parking stalls (though they’ll probably need more bike racks and we’re hearing about properties being designed with pick-up and drop-off lanes out front for the Uber drivers).   

The other thing most of us know (not cave-dwellers, however) is that we shop less at brick and mortar stores and more online, primarily at Amazon.com. Technology means fewer trips to Walgreens® and Target® and more package deliveries from Amazon. Many of our property managers report dozens of daily package deliveries at our apartment projects. A huge strain on the staff in the leasing office and the volume grows by the week. That’s why we’re installing automated package delivery systems (think private storage lockers, web-enabled with text notifications to tenants when they have a package for pick-up). It’s a convenience for the residents, a productivity boost for the staff and may even be a revenue-generator at some point.

These are a few things we’re seeing around the bend.  


Mitch will be speaking as a featured panelist at IMN’s upcoming Middle-Market Multifamily Forum – taking place on May 18-19 in Huntington Beach, CA. All Insiders are entitled to a 10% discount on registration for the event, using the code ‘MFI10’.  Register Now

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