Apartment construction in central business districts (CBDs) has been on an upswing since the beginning of this supply cycle, as renters continue to be attracted to dynamic, amenity-rich urban centers. And the trend is not waning.
Close to 80,000 units are under construction in CBDs across the top 54 U.S. markets, nearly 8% of the current inventory, according to the pipeline chart below.
Construction in traditional outer suburbs is also growing fast. The number of suburban units being built is more than double those currently under development in the CBDs. And while these units represent a lower percentage of the existing inventory—about 2%—this statistic is not surprising because the rental housing inventory is already large in these areas.
Where Best to Invest?
Whether to invest in CBDs or traditional suburbs, or look at premier suburban neighborhoods as a midway alternative, is not a clear-cut decision.
Those willing to take on more risk would probably continue to bet on CBD locations even as the risk of slower rent growth increases. More conservative investors may prefer typical suburban locations, hoping that young families transition more quickly to larger units outside the city. And then there are those who may look at premier suburbs as a way to get the best of both worlds.
According to the pipeline statistics, locations identified as premier suburban across the top 54 U.S. markets are seeing less than 60,000 units under construction, roughly 3% of the existing inventory. Premier suburbs, however, are not exempt from supply risk. Construction is often highly concentrated in a few areas within these neighborhoods, usually close to local amenities. This makes competition tight. Competition can be even more intense if the neighborhood has limited, or still emerging, transportation or services options, which reduce the number of attractive sites.
Premier suburbs can be a feasible alternative to developers looking to diversify their CBD and traditional suburban investments. However, these neighborhoods need to be scrutinized with the same level of detail as the CBD or traditional suburban location—especially at this point in the cycle.