Since March, the economic impact of Covid-19 has continued to unfold globally. The rapid pace at which the pandemic has spread and global actions to curtail it are having unprecedented repercussions on the way we live and do business. While I believe the long-term influence and outcomes of these events will have a unique effect on the multifamily industry, the most important lesson learned is the need to be resilient. Here are four trends we can expect to see in the multifamily sector in the near future.
The ‘New Norm’ In Leasing
The pandemic has pushed multifamily owners and managers to rethink the tools they utilize in attracting prospective tenants. As technology recently became the main vehicle of communication, companies had to quickly become experts at virtual touring in order to maintain leasing activity. In response, we’ve seen a wave in personalized, one-on-one tours through Zoom, Teams and FaceTime, where prospects can safely and effectively view any unit or apartment community.
It’s imperative to also host these tours on your website or YouTube channel where all of your virtual tours are stored for prospects to view at any time and from any location. Another technology that’s boomed is Matterport, the leading 3D software, which enables you to create a realistic digital twin of any property, creating a real-life experience for prospects as if they were actually on the premises.
A Shift From Urban To Suburban
Over the last 20 years, there has been a significant focus on urban living and an increasing trend of densification. People of all generations wanted to live, work and play in big cities for the accessibility, immersive culture, job market and opportunities, but we’re seeing that trend begin to reverse as a result of the pandemic. There’s been an uptick in people moving out to the suburbs in search of more space, affordability and a better quality of life.
This is beneficial to property owners whose portfolios are located outside of big cities. Companies such as Facebook and Twitter are allowing their employees to work from anywhere, enabling their workforce to choose where they want to live, not where they have to live. Secondary cities such as Austin, Texas; Nashville, Tennessee; and Charlotte, North Carolina have been gaining popularity in recent years and will continue to do so. We’ll also see other budding cities benefit as more people transition into more permanent work-from-home environments and being in or near a major city isn’t a necessity anymore.
Pent-Up Demand Means Taking Amenities To The Great Outdoors
Covid-19 has altered the way apartment owners and managers clean and operate, and temporarily closed communal amenities from business centers and gyms to lobbies and playgrounds. New cleaning practices will remain a priority for the owner and an expectation from the renter, and amenities will have to continue to be evaluated and evolve.
As stay-at-home orders have restricted residents’ extracurricular activities and travel plans, residents are rethinking the way they spend their free time and embracing a more active lifestyle. More people simply feel safer outside, and we’re starting to see outdoor workout stations, miniature golf, resort-style gaming, walking trails and bike-share concepts becoming more desirable. Many apartment owners will still maintain traditional amenities that are expected at any apartment community, but now more than ever will prioritize the implementation of socially distanced outdoor fun for all.
New Demands For Living Space
This crisis has created new demands for living space as a result of the shift to remote work and financial strains for every demographic. Not to mention, current events mean society is simply spending more time at home and less time traveling. Historically, developers have focused on over-densifying properties and building smaller units to maximize their return on investment.
Moving forward, people will put less emphasis on small, expensive microunits and prioritize spacious, affordable, private spaces where they can have a dedicated office, living space and separate bedroom. One major benefit of class B housing is that it typically offers bigger units, multiple bedrooms and more spacious floor plans at a more affordable price, compared to new construction properties where you pay more for less space. Plus, class B renters can still reap all the benefits, value and amenities of living in a new apartment community.
It’s also apparent the rental market for urban, class A properties is overheated and not well equipped to handle the Covid-19 demand shock. For years, class A properties were being developed and leased up against one another in just about every major U.S. city. While they would previously get bailed out by the urbanization demographics shift, today the demand just isn’t comparable to pre-pandemic levels. The suburbs have never been more in vogue, and there’s a strong belief that investor appeal for suburban, class B properties will gain even more momentum as a result. That coupled with interest rates near zero through 2021 should push cap rates even lower.
The Way Forward: Respond, Recover And Thrive
Compared to other economic downturns over the last century, the pandemic has been unique in its global reaction and reach. This is a humanitarian challenge that has affected entire countries, regions and cities, and this abrupt change will forever alter how people live, work and play.
These factors will continue to influence multifamily owners and managers and is expected to have long-term effects on the sector. While some real estate players go beyond just adapting and are flourishing, others will fade. By acting today, leaders who are willing to pivot to meet new demands will be able to best serve their residents and ensure their own viability.
The critical question is which of these changes will stick. Acting quickly and intelligently with our key learnings from the pandemic will help determine the fate of those not only in these challenging times, but also as the industry emerges from the crisis and reinvents itself.
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