At yesterday’s “Suburban Strategies: What Works Where?” session at the 2015 National Multifamily Housing Council Apartment Strategies Outlook Conference, a couple of industry-leading developers and economists poked holes in those assertions.
“I think suburbs are great and we have not talked about them enough over the past couple of years,” says Greg Willett, MPF Research's vice president.
For starters, using a broad brush to characterize suburbs, where about two-thirds of apartments starts occur, isn’t doing them justice. “Not all suburbs are the same,” said Jay Parsons, director of analytics and forecasts for MPF Research.
In the right suburbs, apartment owners can enjoy many of the same rent growth, return, and retention advantages they enjoy in the urban core. “In the right suburb, you have a similar story [to what is in an urban markets],” Parsons said.
Finding the right suburb isn’t easy though. Employment, as it is in urban settings, is often the main driver. “Whether it’s urban or suburban, we’re looking for a compelling story,” says Brian Natwick, the president of multifamily at Crescent Communities.
While developers in urban markets face construction challenges, there are issues in the suburbs that can help limit competition as well. Natwick says organized suburban neighborhood groups, often using social media, can stymie new development with concerns about crime, schools, and traffic congestion.
Another concern in the suburbs is retention rates, specifically move-outs to home ownership. But Parsons countered those concerns with a study showing that in 16 out of 20 major metros, the suburbs actually produced better returns than the city.
With that sort of protection, Dean Henry, CEO of Legacy Partners Residential, sees the advantage of staying on the outskirts of town. “Cap rates are lower in urban settings but you’re taking a lot more risk,” he said.