The multifamily housing market is currently undergoing a number of changes, which we believe will ultimately change the investment real estate market. A lot of these changes are dependent on the preferences of renters, which are mostly millennials and now Gen Z demographic (born 1997 – 2012). Property owners and managers, on the other hand, are equally looking for opportunities to upscale their revenues from each successful transaction.
From a review of recent trends, comfort and improved lifestyle are major factors that are contributing to the new shape of the multifamily housing market. Although, expectations vary depending on which side of town renters are looking to settle in. How landlords respond to these needs determines what they make out of the market. For example, residential properties with advanced amenities will do better than others that have very little or no amenities. In general, we can say that there are hot trends that renters and property managers ought to know.
As a result of these trends, we can expect changes in the costs of residential multifamilies and, of course, the number of new projects being built in the market. Here are some impacts to the rental market landlords should take into consideration for multifamilies in 2022.
#1 Living Close To The Downtown
It’s obvious that most millennials prefer to live within the lively part of the city as compared to getting an apartment somewhere else, even if it meant they’d have to part with more money for annual rents. In fact, renters are willing to forgo some space in their apartments as long as they can get comfortable and enjoy modern facilities. As of five years ago, the average size of a 1-bedroom apartment used to be 1,000 square feet. Today, what we have are units that are 8% to 10% smaller. We also see that the cost of housing in urban cities like Las Vegas, New York, New Jersey, Philadelphia, Boston, and Chicago have skyrocketed in recent times. However, for the pleasure and comfort that comes with living in urban areas, renters are willing to pay extra to live a more efficient lifestyle with the everyday necessities right around the corner.
#2 Renters Want More Amenities
The reality is the more the amenities available in the unit, the better it is for both renters and owners. Typically, landlords charge a premium on apartment units that contain more amenities that make life easier than on regular apartments with just basic amenities.
For instance, in a survey published by ButterflyMX, houses with outdoor amenities and energy-efficient upgrades came top of the list in the features which millennials are looking for. Although, this requires space outside and more expenses. Landlords who are able to make these improvements will receive more income in the long run. Also, an amenity such as an in-house laundry unit is another reason why renters will pay more. Houses that have in-apartment washers and dryers, according to surveys, will generally attract more customers than others that do not. Making them even more affordable will dramatically increase the chances of renting them out sooner.
Some of these amenities are included by landlords are done to attract more renters, while others include them to make more money from the buildings. Another common amenity which renters always look out for is a storage room or home office space which could be simply a small bedroom that can’t fit a king size bed. Of course, these extras demand a little extra expenses but owners can recoup their money over time by charging a premium on each unit.
Another in-demand amenity, which tenants yearn for is on-site parking not just for 1-2 people but for guests. This could be dedicated spaces labeled for guests, space off to the side for cars, or extra street parking just outside the property. In essence, these amenities seek to add comfort to life, making things easier.
Other amenities include community gardens, smart light bulbs, light dimmers, USB outlets for phone chargers, safety technology such as cameras, bike racks, and bike storage, and these may be limited to individual units. In general, housing units with these amenities will attract more renters who, in most cases, are willing to pay for the extra comfort provided.
#3 Tenants Prefer Apartments With More Or Advanced Technology
The adoption of smart technology is currently a major factor that goes into determining the types of apartments a tenant would go for. Renters are looking at apartments with facilities that are in tandem with recent technologies. Things like smart thermostats, LED lighting, security cameras, free wifi, and keyless entry are some of the features people consider these days before renting an apartment.
In fact, many people now work from home, we can expect that the already existing demand for internet access in modern multifamily apartments will skyrocket. In other words, landlords and property managers will need to keep revamping properties to keep them marketable and top of the market quality. Over the past years, the desires and preferences of customers in the housing market have evolved, and with the penetration of technology into the way we live, tenants are following in the same direction.
A significant tech feature that is included in new homes is smart thermostats like Ecobee. These smart thermostats enable renters to set the heat and cooling temperatures remotely, thereby giving them more control over the ambiance of their apartments as well as their energy use. Tech-savvy homeowners find these settings quite appealing as it supports productivity for work and reduce costs in the long run. Additional insulation and energy-efficient HVAC are also incorporated into older buildings that are being renovated. Mechanical systems and other energy and money-saving options are also added into the mix. For the most part, these new features are intended to reduce operational costs for both tenants and landlords.
#4 Current Supply Cannot Keep Up With Demand
According to Real Page Analytics, following the record growth in the apartment market over the past five years, the market may have hit its peak, meaning that the rate of new constructions will most likely slow down in the coming years. Essentially, the demand for new homes will outnumber the available supply. The National Apartment Association (NAA) projected in 2021 that construction completions will be lower toward the end of the year.
Obviously, the current supply of rental units cannot keep up with the current demand. Hence, to augment the supply of rental units from the building of new apartment housing, there’s a growing need to renovate and update the existing older properties. It is expected that by 2030, about 4.5 million multifamily units will be needed to accommodate the demand of the rental population.
#5 Post-COVID Trends
Another trend to keep an eye on is the fallout of the COVID-19 pandemic. The impact of the pandemic has been felt in almost all facets of life, and the housing sector is not an exception. COVID-19 has not spared any industry and to be fair, we can expect some trends to continue to evolve in the multifamily housing market after the wave of coronavirus has passed.
For instance, virtual tours and self-guided showings will help the rental search process smoother. Renters have previously relied on this method to check the looks of apartments before doing physical visits. The demand for new apartments is expected to stay stagnant for a while.
In Conclusion
It is easy to tell that renters are looking for better facilities, more comfort, and are willing to pay for these. Therefore, we can expect a win-win market for both home developers and renters. Multifamily renters want luxury amenities, however, current supply does not meet up with existing demand.
