“Generation Rent” Helps Drive Multi-Family Growth
Multi-family continues to be quite the darling in the real estate industry, both nationally and in the Kansas City area. In many segments of the metro you will find innovative new development underway and in the pipeline as well as significant renovations of existing multi-family properties.
According to ForRent Media Solutions, the areais currently seeing 7,000 multi-family units under construction or in the process of lease-up stabilizationand another 8,000 proposed. In an average year in Kansas City, we would see an absorption rate of roughly 1,600 units a year. However,post-recession new development had been minimal giving rise to increasing pent-up demand. According to Valbridge Property Advisors, occupancy rates throughout the metro are averaging 95 percent — consistent with the national average of 93 to 98 percent — with modest rent growth in the 3 percentrange. Concessions appear to be moderately at play. With all the new units coming online there maybe incentives, particularly during the lease-up period.
The majority of the new multi-family developments in Kansas City that are underway today are strategically located and high-end Class A product appealing to the “renter by choice” (RBC) demographic. RBC is multi-generational. The largest demographic cohorts include the professional millennial (age 25-34), couples without children and Baby Boomers.
According to Fannie Mae’s 2014 National Housing Survey, 66 percent of Millennials are more likely to rent when they move out of their parent’s home. These young adults witnessed the painful impact the last economic crash had on their parents and, in turn, are making a conscious effort to avoid the same for themselves in the future. Millennials have less interest in owning and more on sharing. (Think uber, vrbo, but, one hopes, not their parent’s guestroom). In addition, school and other debt, along with a slower advance into a career, has delayed the financial stability needed to purchase a home. The millennial impact on this trend is so great, some have given them the nickname, “Generation Rent.”
Many Baby Boomers are ready to enjoy lower maintenance responsibilities as well as easy access to shops, restaurants, entertainment, recreational activities and social engagement. They are choosing renting over home ownership, moving into apartments close to the community attractions important to them.
RBC demographicsare attracted to many of the same attributes and amenities. Multi-family finishes and amenity packages are reaching new heights. Quartz countertops, hardwood floors, open floor plans, community Wi-Fi, concierge and spa services, cyber cafes, interactive fitness centers, yoga, pet wash stations, bike maintenance rooms and more all are becoming the norm. Dream it and it is probably being offered.
These higher standards for amenitiesare beginning to overflow into the existing market as well. Eighty-three percent of all multi-family properties were built more than 15 years ago, underscoring the timeliness for multi-familyowners of this property class to step up their game with their properties’ appearance, amenities and technology to remain relevant in the marketplace of the future.
An overarching trend influencing all housing and development design is wellness.The Urban Land Institute (ULI), has rolled out the Building Healthy Places Initiative to respond to the new health alarm that “sitting is the new smoking.” ULI’s tool kit includes all kinds of innovative ideas to design, build and program properties to support the physical, mental and social well being of the people who live and work at or visit these developments.
Building Healthy Places is consistent with the growing demand by renters across all demographics to live within walking distance of grocery stores, restaurants and shopping. Millennials in particular seek out proximity to green spaces and public transportation. Multi-family property owners are encouraged to be active players in discussions and projects that link health and real estate development– core components of thriving communities.
There isn’t a better time to be involved in multi-family in Kansas City and take advantage of the tools that the CCIM education and resources provide for value and leadership to clients and customers.
By: Ellen Todd, CCIM, CPM
President Curry Real Estate Services
Published in the Kansas City Business Journal, April 24, 2015