Changing demographics, shifting social values, and evolving development landscapes all continue to drive a surging, nationwide demand for multifamily housing. With empty-nesters looking to downsize, millennials staying single longer, and a general desire for a more convenient and social lifestyle, more and more “renter-by-choice” Americans are forgoing mortgages for lease agreements.
As demand for new housing units continues to drive the multifamily sector in 2019, developers are tasked with finding new ways to satisfy the growing need for apartments.
Here are four multifamily development trends to watch for in 2019:
1. Expanded Project Portfolios to Meet Middle-Market Demand
As resident profiles expand, so too must the communities and units built to attract and accommodate them. The multifamily sector has been heavily weighted at the top end of the market in the past few years, but in 2019 the industry will experience an expansion of scope in order to serve a more diverse resident base, especially the middle market.
At The Beach Co., we’ve focused heavily on catering our product to a discerning and selective resident wanting luxury apartments. While demand for this product is still alive and well, we're looking to develop a more balanced portfolio of communities with a variety of price points.
In 2019, we’ll see a spike in demand for attainable rental options, and in fact, we’re already seeing demand for attainable housing in all our active markets today.
Through increased segmentation, developers are realizing that affordable housing options can't be a one-size-fits-all approach. While some developers in the most competitive markets—where space is at a premium—offer attainable housing in the form of micro-units, this approach is less popular in smaller markets.
Moreover, the tiny-apartment trend will be unable to satisfy the growing middle-market demand. In the Southeast, suburban areas present an opportunity to offer larger floor plans, which is key in targeting middle-market customers. To maintain a competitive edge next year, multifamily developers must adopt targeted solutions that appeal to each potential market, which includes paying more attention to attainable and more affordable housing solutions.
2. Increased Customization
The key to a successful lease-up is to differentiate your product to appeal to the demands of your market’s unique resident base. Developers are achieving new levels of project customization through enhanced research and development practices. Demographic research is a good starting point, but a deeper understanding of a potential site’s history, economy, industry, and culture all contribute to meaningful customization.
For example, knowledge of emerging industry in a region can be the impetus for new development projects. This was the case with The Beach Co.’s Summer Wind project, currently under construction in Dorchester County, S.C., which was conceptualized in response to a number of major international companies, including Volvo, Bosch, Boeing, and Mercedes-Benz, opening facilities in the area.
Additionally, with the deluge of customer data now available, developers are better equipped than ever to ascertain the needs and desires of future residents. Conducting thorough market research before embarking on a new project is essential and goes beyond informed marketing efforts to heavily influence property and unit design.
A resident-centric application of customization can be seen in the continued evolution of amenity offerings. While the amenity war in the multifamily sector has been raging for the past few years, 2019 will usher in a wave of technology-focused amenity offerings like smart access-control systems and automated package-pickup services.
3. Shared Amenity Space
In recent years, mixed-use developments have thrived as a result of evolving lifestyle preferences among today’s renters. Whether in an urban-core setting or a suburban town-center design, young and old generations alike are seeking more-active, -social, and -walkable lifestyles with short commutes and proximity to leisure activities.
In response, mixed-use developments offer an artful blend of residential, office, and retail spaces. Consequently, prized amenities formerly only available to multifamily tenants are now available to nonresidents. Proximity and exposure to the greater community has led a growing number of owners to allow nonresidents to purchase memberships to common-area amenities such as fitness centers. This alternative finance stream marks a growing evolution in the multifamily business model and provides for greater utilization of a community’s fixed assets.
Additionally, employees of corporate tenants in mixed-use developments typically have access to the residential amenities as part of their benefits package. This will be the case with The Jasper, which my firm is currently building in historic downtown Charleston, S.C. Slated for completion in 2020, the luxury, 12-story, mixed-use building will include 219 luxury multifamily units, 75,000 square feet of Class A office space, and 25,000 square feet of first-floor retail. The mixed-use amenities feature high-end on-site dining and shopping; a rooftop pool and garden with a sundeck and outdoor kitchen; a commercial-quality fitness center; a clubroom with lounge and demonstration kitchen; and private wine lockers.
4. Urban-Core Workarounds
Today’s renter still wants to live downtown but is being priced out of the urban market. Construction costs remain high, so developers must look to alternative solutions like adaptive reuse of existing buildings to help solve some of the cost issues in the urban core.
In these markets, retrofitting an existing building may be more attractive, as the structure costs are already in place, so multifamily developers can deliver a product just as nice as a new community with a lower cost basis, resulting in a lower rent for the resident. Adaptive-reuse solutions will likely offer a slimmed-down, lifestyle-driven amenity package, which may include services such as refrigerated lockers for home grocery delivery or customer-driven parcel centers catering to online shoppers.
While we’re seeing a push for attainable solutions from urban-core renters, most cities have offered few incentives for developers to build affordable multifamily product in the past. In recent years, we’ve witnessed some cities doing away with or significantly reducing the number of required parking spaces in new developments by incentivizing developers and residents to promote and use alternative modes of transportation, such as ride sharing or public transit.
In 2019, we’ll see more municipalities putting programs in place to assist with affordable housing development, with some creating mandates that require a certain amount of affordable housing. To really make a project attractive to developers and local governments, I predict we’ll see more incentives for developers to make projects affordable in the form of subsidies through tax abatements, tax increment financing districts, or other forms of public–private partnerships.
Today more than ever, it’s important for developers to form partnerships with local municipalities in active markets to better understand the needs of the city and its residents.
