If you’re building a new Class A apartment community in 2016 and you don’t have a pool or fitness center, it’s doubtful you’re going to compete (unless there are very special circumstances). But nice pools and large fitness centers with a wide array of equipment aren’t the only communal amenities people seek when looking for the perfect place to rent, say industry pros.
Bill Greene, senior design manager, Central region, for Atlanta-based Wood Partners, is one of those pros. For 25 years, Greene has been helping add design amenities to apartment buildings, the last eight at Wood Partners.
“The bar’s being raised higher and higher on these communal amenities,” Greene says. “Millennials expect them. Besides them wanting to live close to work, they expect every amenity you could probably find in a single-family suburban market, but all in one area.”
While a project’s location is crucial to its success, in competitive markets nationwide, developers have to set their projects apart from their competition, or, at the very least, keep up in the “amenities arms race.”
At Charleston, S.C.–based Greystar, Toni Reeves, executive director of the company’s central division, says she and her team try to “determine what’s already in the market, what things in the market we really need to have as well, and what would be really nice to diversify us from what’s already there.”
It’s crucial, she adds, to design something. “After [prospective renters] tour four or five projects, that’s going to make your asset stand out in their mind. I think you can be really deliberate and accomplish that without 100 different things going on.”
The National Multifamily Housing Council (NMHC), along with Kingsley Associates, polled nearly 120,000 residents about communal amenities in a survey last fall and results were fairly steady across the board. The unswerving marks caught Rick Haughey, NMHC’s vice president of industry technology initiatives, off guard. “There are core things people are looking for in an apartment,” he says. “That was surprisingly consistent across the United States.”
Nationally, 94% of respondents to the NMHC/Kingsley survey said they were interested or very interested in parking, by far the No. 1 amenity or feature. Pools (83%), fitness centers (82%), and secured community access (80%) were next on the list. Data from five metros—Boston, Miami, Denver, Houston, and Seattle—back up these figures.
So how do developers plan out these communal spaces to make sure they’re getting the best bang for their buck while also differentiating their properties from the complex down the block? Is there a risk of spending too much on amenities and then not attracting a clientele who can afford the rents a company would need in order to turn a decent profit? It depends on whom you ask.
And That’s the Bottom Line
The size of amenity spaces has grown over the years, Greene says, to the point where Wood Partners now devotes double the room for them compared with last cycle—from 5,000 to 10,000 square feet, on average. Most notably, he adds, fitness centers have grown not only in size but in offerings, as well. “Why go join a gym when you’ve got everything here?” he says.
Atlanta-based Gables Residential has concentrated more of its time and resources on amenity spaces in recent years, says Cristina Sullivan, executive vice president of operations, because its clients are now looking for a full living experience.
“Amenities and services have become a bigger part of the equation for them,” she says of Gables’ residents. Newer projects have more features, and older ones are adding similar features to bring them up-to-date.
When a property is being planned, Sullivan explains, community spaces are now thought of differently from 10 to 15 years ago. Developments that would have once featured large tennis or racquetball courts now include pet parks, expanded fitness centers, and areas for residents to congregate.
“It’s being smarter about the space we use,” Sullivan says. “And we’ve also just re-engineered some of the space.
“You hear about more and more amenities, but there are amenities we don’t do anymore that used to take up a lot of space,” she notes, adding that space can even be found from a leasing office. In past years, for example, an office would have had to include a room for files, but in the digital era that’s no longer necessary.
Apartment units have gotten marginally smaller, says Chip Bay, Mill Creek Residential’s executive managing director and national practice leader for construction and development, while amenity spaces have grown and common areas have added more features. Years ago, when Dallas-based Mill Creek would build a garden community, Bay explains, the clubhouses were used primarily as a company marketing tool. Once prospective renters would get in the door, they’d see a leasing office, fitness center, and maybe a conference room. “People would like it, then maybe never come back and use that space again,” he says. “Now, they get attention, and they’re much more functional.”
Amenity decisions aren’t just driven by residents. Investors in Wood Partners’ deals have become more hands-on these days, Greene says, and want to make sure the company is providing the right features to attract clients. The added investment in amenities, he adds, doesn’t hurt the company’s bottom line because it’s a necessity in order to keep pace with the competition. “Our competitors are always trying to outdo one another,” Greene says. “A property can easily fail if you’re not building what the market demands.”
Using a football metaphor, Bay adds that a company still has to do its “basic blocking and tackling” to ensure these communal spaces are developed properly and give people a reason to pay higher rents to live there.
“The market has expectations, and the market responds,” Bay says. “Yes, the units have gotten smaller. That’s allowed for more units per property and also allowed for more space for the amenities. All in all, it definitely drops to the bottom line and has been a net positive for all our communities.”
Sullivan explains that it’s understandably more expensive to build larger, more-extravagant amenities, but the cost of maintaining the new features is about the same. If locations are more or less the same between competing properties, amenities have a big impact in rent prices. “The better the amenity package you have, the more you’re able to achieve some of the higher rents in markets,” she says.
Location Still Crucial
An apartment developer can blow out its budget on amenities, but, ultimately, the location of the property matters most.
“The biggest community amenity is always the neighborhood,” says Jerry Davis, COO of Highlands Ranch, Colo.–based UDR, explaining that the surrounding area can play a big role in a project’s success. It can be nothing a company pays for directly (other than in the land purchase), like walkable space or proximity to mass transportation, or something it even makes money on, like a first-floor business that leases space.
In hot markets, Bay explains, investing big in communal amenities presents a “chicken and egg” scenario determining whether the location or the amenity is driving rent.
“A majority of the rent itself is dictated by the location,” he says. “If you’re in … an area that’s very competitive, then you want to have the best amenities available in order to be competitive not only in terms of your rents but in terms of your occupancy, as well.
“People can shop [around]; it’s much easier to do on the Internet now, when you can compare communities side by side,” Bay adds.
When demand is high for a particular area, amenities don’t necessarily have as big a role to play.
“If you’re in the right neighborhood and the market is as tight as it is, people may be satisfied with the basics,” Haughey explains. “But I think, in general, the expectations of the renters have been raised, and I think that has been accepted by our membership in terms of thinking that they really have to provide it.”
Having spaces where people can meet—conference rooms have become very popular at UDR’s properties, for example, as more and more people work from home nowadays and enjoy relaxing socially with a laptop computer nearby—is a big part of a company’s success, Davis says.
“When it comes time for their lease to expire, if your residents have more friends that live at the community, they’re more likely to renew with you,” Davis explains. “It’s not only about getting higher rent; it’s also about having higher retention and driving the bottom line.”
Market to Market
Product and material costs are essentially the same nationwide, according to Davis and Bay, but as Greene points out, there are expense variations when building a fitness center in different parts of the country.
In Texas, Greene says, Wood Partners doesn’t have to work with trade unions (and their more-expensive labor) like it would in Chicago. And then there are those markets where any labor is tough to come by.
“In Denver, where there’s such a shallow submarket, we’re having trouble with labor costs there because there’s a shortage of it,” Greene says. “We’re barely getting subs to even look at our plans. Once we get them lined up to do construction, good luck if they’re going to show up, because the job down the street is probably offering a little bit more money. The tighter labor market really is creating higher costs. The commodities are pretty much in check; it’s the labor that’s getting us right now.”
In Bay’s experience, the cost per square foot doesn’t change much from market to market, but the square footage itself may vary. “In Florida, because of the weather, our amenities tend to be bigger in terms of the square footage,” he says. “They’re not as big in Portland, Ore., and the market doesn’t necessarily deem it necessary.”
Reduce, Reuse …
A lot’s been changing in the apartment world, and as more young adults begin renting, their tastes and preferences will continue to drive that change. Haughey notes the percentage of NMHC/Kingsley survey respondents who said they’d be interested or very interested in renting in a community that offers recycling: 80%. The people who said they were interested in recycling responded that they’d conceivably pay an extra $26.42 a month for the service. Likewise, among the 73% who said they’d be interested in a community with sustainability/green certifications, an additional $32.64 could be commanded, the NMHC/Kingsley research shows.
“I’m not sure why that consistently came up so highly,” Haughey says of the recycling results. “Whether it’s because they’re currently frustrated that they don’t have good recycling in their communities, or it’s just something they have and they appreciate it. I’m wondering if it’s more that we’re not providing recycling opportunities and it’s frustrating people.”
Greene and Sullivan say recycling programs are expected but that residents won’t pay extra for them. Davis, who responds similarly to his peers, says he’s seen “no evidence that residents will pay more for it. You can minimally drive down your trash costs [with a recycling program]. I don’t think you can necessarily charge more for it, but I do think people who are eco-conscious will choose to not live there if they’re forced to throw away things that they’re used to recycling.”
In terms of recycling and sustainability programs, Haughey says it may be time for the industry to recalibrate its perceptions. “We can never quite get a read on where our residents are with that,” he says. “Our industry response has always been, ‘Yeah, but they don’t want to pay for it.’ But it could really benefit from some further analysis.”
Interest in sustainability programs, Haughey says, decline as resident age increases. Of people under 25, 76% are interested, compared with 66% of people age 65 or up. “From an age breakdown,” he adds, “you’d assume as [the under 25] group ages, they’re going to have the same interests, and you could probably assume the generation coming in behind them is going to be the same. The environmental issues will be in the forefront moving forward, with climate change.”
A Look Into the Crystal Ball
Much like changing interest in sustainability programs, changes in technology continue to keep the multifamily industry on its toes.
Greystar, like many developers, used to commonly build media rooms. Eventually, those rooms would go unused, Reeves says, and the company was stuck with a large area that wasn’t attracting any attention. “Now, we’re installing media rooms or game rooms that revolve around a big-screen TV but don’t have fixed seating; they don’t have a sloped floor,” she says. “So in five to seven years, when they become somewhat obsolete, we can program it differently.”
That’s the trick: Have flexibility for spaces centered around technology. “If it’s an amenity that wasn’t planned well and it’s not timeless, then it doesn’t work,” Greene says. “If you’re designing something with technology that’s going to be outdated in 12 months, it’s probably not worth the investment.”
Technology, in the form of e-commerce, has had a huge impact on apartment space. Ten years ago, Davis recalls, no one in the industry, and not many on the planet, could have predicted how important e-commerce would become. As online shopping grows, and residents, especially young adults, continue to order more packages, however, multifamily executives need to find the best practices to deal with the surge. Package lockers have been introduced, but is it the long-term solution?
As Davis explains, developers must do their best to look into the future and plan for what’s next. “Whatever is in vogue today … it will change,” he says. “Something else is going to come up that people will expect or want, and you just want to have the flexibility to change.
“Whatever is in our communities today,” Davis continues, “10 years from now, we’re going to be making some adjustments based on resident demand.”