2017 is here! It’s a brand-new year full of possibilities and potential. Are you looking for ways to push your community to another level? If so, you have come to the right spot! We are here to discuss some of the most exciting (and a few outlandish) multifamily trends for 2017.
As with most years, there is both good and bad on the horizon for the multifamily industry in the coming year. First, we will spill the beans on the (potentially) bad.
Weighing the Good and Bad: Concession vs Recession
Rising construction costs combined with many markets who are currently at risk of over-development, the market for top tier, new construction will continue to concede to more weighty purchases in sub-markets. This competition will continue to push rents to steady increases.
The 2016 4th quarter proved that institutional buyers are currently snatching up value-add communities increasing rent rates as they grow their portfolios. At the same time, residents will begin to also make concessions, choosing Class B and Class C properties over their higher priced Class A competitors. This will help to drive up the popularity of these classes of communities.
But how high can this growth curve go before it starts to move backward? No one really has a crystal ball to be able to see in the future, but it is appropriate to believe that a recession in rental rates is on the horizon. All you have to do is look at larger markets such as Houston, or San Francisco to be able to track the growth pattern of the current, nearly historic, rising rates. Couple that with the expected slowed growth of rental rates, and the repercussions of sub-par purchases from the end of 2015 and that could be a recipe for recession in the multifamily market.
Lucky enough for the multifamily world, there is more GOOD than bad. So now… on with the good.
Multifamily Trends: Value-Add Properties vs Ground Up Construction
2017 will predictably see multifamily trend toward increased demand for previously ignored markets as owners continue to take monetary hits from their portfolios stacked with high end properties. Many will have the tendency to avoid bringing new construction properties into their portfolios as the cost of labor and construction both rise. The high cost of land and construction is currently creating a middle-class housing crisis. Even with this propensity, many investors will still avoid properties that require heavy lifting to push rental rates up. The moral of this story is, one should not assume that they can unload properties in disrepair simply because there is a call for it in the market. Owners will be discriminating, looking for communities that can have value added easily to produce a quick return.
Value Added vs Luxuries.
While we may worry about the overall “value” of the property we cannot forget the residents living within it. Unless you are a new development or have a devastating disaster, when selling a property, it will likely be occupied. How do we define value added for residents or multifamily owners / buyers? Are these two subsets looking for the same types of upgrades? How can we go about upgrading and adding value while simultaneously appealing to the current residents?
Let’s explore a few multifamily trends that could be considered equally important to put your property in line with both resident and ownership expectations.
Appealing to a Diverse Demographic.
We must first decide WHO is demographic. In the year 2017, there are two clearly emerging groups pushing the multifamily market upward: millennials and empty-nesters. Many empty-nesters are looking to downsize and be maintenance free after their children have gone off to college. Millennials are now likely to be post college, job hunting and in a pre-marriage phase of life. They are equally attracted to urban/ walk-able lifestyles provided by multifamily housing. While they may be separated by many years, these two groups share a common desire for trendy design, updated technology, outdoor amenities, well-lit and easily accessible parking areas, and finally sound dampening efforts so that the two groups can peacefully coexist together.
Multifamily Trends: Choosing Luxuries that Work
If you find yourself with an aging property that needs a little “lipstick and eyeliner” you probably also find yourself debating about WHAT needs to be done. You must first decide if you want to target a “luxury” market or if you simply want to provide better housing for the middle market. Understanding what your residents want and need, is most important to success. Targeting the middle class who have been edged out of the luxury will ensure a virtually steady flow of potential residents. These residents will also be far more interested in a property with a few luxuries than one without.
There are many upgrades that can add overall value while also enticing residents’ need for luxury.
Individual Unit Upgrades
Upgrading individual units can help mitigate this issue. Even with smaller square footage, upgraded fixtures inside units help to make them more sell-able.
Hard surface flooring is much more sanitary than carpet and lasts longer. This has become a standard in single family housing that is trickling over to multifamily.
Kitchen Upgrades like solid surface counter tops or cabinets enhance the appeal of a unit and will last for 10+ years if you choose durable products. When amortizing the cost across the years, this can be a very affordable investment.
Appliance Upgrades not only make an apartment “prettier” they also increase its efficiency. Whether you have utilities included (which saves you money) or can tout lower bills as a selling tactic (which saves the resident money), efficiency is at the top of nearly every improvement plan in the multifamily industry these days.
Community Space Upgrades
Upgrading your community may be as simple as a few community areas. While the initial investment may be higher for these type upgrades, amortizing the cost across several hundred unit and many years of use, can make them quite affordable.
Community Gym / Work out space. In recent years, the multifamily industry has seen a monumental shift in this “necessity”. There has been a shift from a well-appointed miniature gym containing stocked with equipment such as treadmills elliptical and bikes, to open areas for hosting classes such as yoga, Pilates and Zumba. Some communities are choosing to side step the “gym” amenity altogether and broker deals with nearby gyms that give discounts or freebies to their residents. Either way, including health and wellness in your community
Concierge services carry weight. Dog walking, dry cleaning, package delivery management, personal shopper or even a travel agent are becoming standard to many communities. Partnering with outside services can save your community from incurring man hour costs as well help establish a repertoire within your city.
Live / Work Spaces. While your residents live inside your community, the rising number of persons who telecommute drives the need for additional community work spaces. Having a business center complete with basic office equipment such as a board room / meeting space, copier/ fax machine, video conference equipment and high speed internet can make your community attractive to a large population who work from home.
Pet Friendly Space Upgrades
Pets are commonly viewed as a member of the family. Especially for millennials and empty-nesters, pets are standard in these households. Each group holds their furry family members in high esteem and multifamily communities would be well advised to do the same.
Outdoor pet spaces. A “dog park” can consist of a simple fenced area to contain pets while they exercise or it can be as elaborate as to contain equipment for teaching agility. Be sure to have an appropriate place for human family members to sit while enjoying the space and designated spot for “clean-up”
Indoor pet spaces. A communal pet “spa”, washing / grooming station fully equipped with washer / dryer specifically for pet laundry can be a very appealing amenity. Including a larger sink with shower capabilities lowered to allow pets to step in. You could even choose to stock the area with shampoos, trimmers, etc.
Multifamily Trends: Repeat Residents Have Discriminating Tastes.
The NAHB reports that residential remodeling activity is expected to increase nearly 5% over the 2016-17 period. “Solid job gains include rising salaries and wages” will account for the continued push in the residential housing market. While single family housing starts are expected to continue to rise, multifamily will continue to see their new construction enter a slow decline. This primes the market for remodels and sales of current multifamily communities. Third quarter reports by the National Census Bureau show a continued reduction in overall rental vacancies which now stands at 6.3%. This directly correlates with a growing interest in multifamily housing.
So… let’s do the math. Rising interest in multifamily housing over single family + reduced new construction communities = increase in sales of currently existing communities. Are you positioned and ready to buy and sell in 2017?