When a new year rolls around, there are plenty of predictions about what contractors can expect in the way of trends, and the multifamily market is no exception.
Commercial real estate services and research company CBRE, which Real Capital Analytics has named the top United States apartment broker since 2001, has determined that construction of new multifamily housing properties in the suburbs will outperform activity in urban markets.
The 2020 U.S. Real Estate Market Outlook notes that permits and starts are likely to dip this year due to lower demand — 240,000 units this year versus 300,000 last year — and that there are so many properties under construction that completions are on target to come in at 280,000 new units, just 1,000 less than in 2019.
CBRE has Boston slated to be the most robust multifamily market in 2020, along with Austin, Atlanta and Phoenix, which are high-growth hubs.
Nevertheless, developers would do well, according to CBRE, to focus investment on smaller markets with fewer than 2 million residents. It cited a range of these types of cities that had 4% or greater rent growth as of the third quarter of 2019, including:
- Albuquerque, New Mexico
- Birmingham, Alabama
- Colorado Springs, Colorado
- Greensboro, North Carolina
- Memphis, Tennessee
- Dayton, Ohio
- Tucson, Arizona
Although the risk of overbuilding in smaller markets is greater than in large urban areas, that risk is mitigated in the aforementioned cities by the right supply and demand fundamentals. In addition, there are many smaller cities in the midst of urban revivals, which is helping to draw and retain new renters.
Costs for renters are typically lower the farther away from urban centers they get; however, developers that build in the suburbs could encounter more difficulty winning approval in smaller communities, according to another new study.
Using the Greater Boston area as an example, the research supported by various housing groups found that in towns surrounding the city of Boston:
- Land zoned for multifamily is scarce due to density restrictions and tends to be limited to certain districts.
- The zoning approval process has become more discretionary and political.
- More multifamily projects require special permits or use variances, which are also discretionary. Increasingly, town meetings and city councils are becoming more involved in the decision-making.
- More multifamily permits require mixed-use sites, but if the commercial market makes a downward turn, developers will have a harder time filling that space with retail and other commercial uses.
- Zoning for multifamily projects tends to be away from the city center and transit, often at the municipality's borders where there is a history of industrial use.
The author of the study, "The State of Zoning for Multi-Family Housing In 100 Cities and Towns in Greater Boston," suggested that projects on the peripheries of municipalities should be "more walkable, more vibrant and better connected to other places."
This has not been lost on states like Texas, where communities like the Howard Hughes Corp.'s Monarch City in Allen, Texas, are transforming the suburbs of Dallas into mini urban centers. Monarch City will ultimately offer 10 million square feet of office, residential, retail and hospitality space, Bisnow reported, with 30,000 people living or working there.