If you’re a multifamily investor, you may want to pack up your plans for that pricey downtown property and expand your horizons to include the suburbs – where investments (and rent) are heating up. Thanks to an over-supply of luxury Class A properties in downtown urban areas, more and more renters are seeking urban-lite experiences in the ‘burbs and investors are doing well to oblige them. BAM looks at investors and renters heading away from the center of the city’s action and moving to the outskirts…and taking the city with them.
City Centers See Oversupply and Flat Rents
While many investors were (and are) hoping to nail a terrific property in the heart of the city, for many cities, the market is flooded with similar expensive Class A apartments that are limiting rental growth. As we’ve written in BAM features before, much of the new inventory expected to hit the market is more of the same which won’t alleviate that problem. Renters seeking more affordable options are then turning to a slightly longer commute that promises similar amenities: the new crop of suburban properties. For investors it’s also a win/win, because they’ll pay less for properties and still be able to adjust rents in newly desirable areas. The occupancy rates in many such communities have remained high, as tenants find these rates far more affordable than downtown counterparts, yet with similar perks and features.
Bringing the City to the Suburbs
The years of renters becoming accustomed to upscale downtown living have created a demand for fine features, even when the same tenants move from the bustling downtown to the suburban environment. Smart investors/developers have opted to design communities that resemble slices of urban life and offer some of the same benefits that former urban-dwellers would appreciate. Mixed-use properties, walkability, and high-end finishes have helped create small pockets of downtown-style living in the suburbs. Renters who might be turned off by the stereotypical vinyl-village neighborhoods will fit right in with these urban-lite reproductions created by savvy investors. The suburbs are also often home to older Class B and C properties that are good value-add propositions and more affordable than similar urban properties.
A Good Fit for the Right Demographics
Older millennials may have removed themselves partially from the daily grind of the city but they aren’t ready to tackle a mortgage and still appreciate apartment life. These new suburban properties are a terrific balance for many millennials, as they’ll save hundreds or more on their monthly lease and still enjoy what made them one of the biggest rental generations. Not to be outdone, Baby Boomers are also finding these suburban communities a good fit after downsizing. Not all Boomers are ready for the hustle of the city and these suburban apartments strike a great middle ground after deciding to give up the demands of home-ownership, as many Boomers have done and will continue to do within the next decade.
The Take Away
The urban center is currently seeing an over-supply of luxury properties with less value-add properties available that make good investment sense. The suburban market is heating up for investors as more value-add properties are available, land is cheaper for new builds, and smart developers are utilizing designs that have helped make urban living so popular. Two of the largest rental generations are hitting the suburban multifamily market hard as they move away from the expense of the city and the demands of home ownership. Investors looking for a good deal can find it – and in the best case scenario, capitalize with raising rental rates.