By Barbra Murray, Contributing Writer
Irvine, Calif.—The apartment sector, which is leading the rebound of the commercial real estate industry, is in the midst of transition, and it’s the growing population of young professionals that is spurring the change. Multifamily rentals are getting smaller but more amenitized because that’s the way the 20- and 30-something crowd wants it.
The demand for apartments is on the rise across the country and the numbers tell the story. In the six-month period from February 2011 to August 2011 alone, the national occupancy rate jumped from just over 93.2 percent to 94.1 percent, according to apartment sector research firm Axiometrics Inc. A certain group—the gen-x, gen-y and echo boomer population—is behind much of that rising demand and is triggering an evolution in the market that Rohit Anand, a principal in the Washington, DC-area office of KTGY Group Inc., Architecture + Planning, is seeing transpire right before his eyes.
It’s simple. Many of those in the early stages of their careers want to rent, even if they can afford to buy, in what continues to be a frosty lending climate. They have their reasons. “They have certainly seen the for-sale market take a blood-letting in the last two years and they’ve seen their parents and others lose a lot of equity,” Anand, a 25-year veteran of multifamily and residential development design, tells MHN. “So the American dream of owning a house is being delayed for them, but really by choice. Another factor is that this generation can work in Boston, they can work in Bangalore, they can work anywhere in the world, so they want to be pretty footloose and free and don’t want to get tied down to having to buy a house. Right now, they want to see the world, they want to change jobs and experience a whole lot of different things.”
The emergence of this very influential demographic is undeniably increasing the call for new apartments, but not just any apartments. “Although this generation wants to rent, the salaries they have are not conducive to high-end apartments,” Anand says. “Their salaries are good salaries, they’re professional salaries, but they’re not at the highest end.”
Atlhough those in the youthful renter set are not eager to shell out the big bucks for their digs, they are keen on residing in a rental community that offers all the extras. Anand and his KTGY colleagues have been—and continue to be—called upon by any number of developers to design apartment communities that will appeal to today’s renter. Properties in urban areas are in the most highly coveted, and for the most part, developing in urban infill locations means working with a small amount of space. While these renters can live without gargantuan-size accommodations, they do not want to live without coveted amenities. Alas, architects are putting more thought and creativity into designing interior communal spaces and amenities areas, such as clubhouses large enough to contain everything from the requisite state-of-the-art fitness center to a movie viewing room to a wireless access café. The incorporation of modern outdoor offerings is also of high priority. More and more properties feature dog runs and rooftop patios—green rooftop patios of course, to appeal to the increasingly environmentally-conscious renter population.
And then there’s the matter of location, location and yet again, location. “This generation wants to live close to transit in cities where the city itself is, essentially, their amenity,” Anand explains. “They’re looking for apartments in the right locations for them, and for them, those are generally in city center-type locations or just outside the city center area near transit. They don’t necessarily want a car, nor do they want to spend their lives commuting from the suburbs. They enjoy the urban lifestyle in cities.”
As renter demographics change, developers are taking heed. After years of declining or stagnant development activity, builders are breaking ground again on apartment projects. “What the developers are looking at is this huge demographic of 70 to 80 million gen-x, gen-y and echo boom kids that are coming into the workforce in the next two to 10 years. It’s really almost greater than the baby boom numbers and they’re seeing that this generation wants to rent for quite some time. There’s really no rental housing product that’s been built in the last three years, so there’s a pent up demand just based on that. Also, this demographic that’s in the late 20s to early 30s is going to go far longer living in apartments, as opposed to buying a house, than previous generations. They may go from property to property but they look like they’re going to rent for a long time because they don’t want to get tied down.”
Indeed, it appears the apartment sector will be the flavor of the decade, if not longer. Those with funds on hand are eager to get a piece of the pie. “There’s no question,” Anand says. “When we talk to investors, developers, equity partners, the asset of choice for them to invest their money in right now is multifamily, based on the demand that they see coming from this generation.”
And the crippling grip of the credit crunch is loosening up when it comes to providing financing in the apartment sector. “I won’t name names, but at some of the big Wall Street investment banks, the people in multifamily investment banking tell me that their peers on the office side, or retail or other asset classes are doing hardly any volume. All of the volume in these investment banks providing equity is to multifamily.”