Suburbanization Unveils Growth Opportunities


by John Chang

URBAN AND SUBURBAN TRADEOFF ACCENTUATED BY THE HEALTH CRISIS The drastically different lifestyles of quarantine and the shift to remote working are having an immediate impact on renter preferences, with implications for multifamily prop- erties and investors. Living space is taking priority over location for many who are currently searching for an apartment, leading tenants to the suburbs, where unit sizes and communal areas can be larger. Additionally, entertainment, night- life and other urban amenities that typically entice renters to downtown apartments are closed or operating at limited capacity, stunting demand for nearby living options. The subur- ban momentum linked to downtown business closures will subside in the near term as progress is made on combatting the pandemic. Howev- er, a longer-term shift benefitting suburban multifamily could emerge

if more companies keep their staff remote into the future. Employees that aren’t tied to a physical office can be more flexible in their apart - ment search and may find more affordable living options in the sub- urbs that can better accommodate an at-home workspace. Apartments near urban office districts could notice a downtick in demand if a sig- nificant portion of nearby employers keep operations remote or relocate to suburban settings. Multifamily investors seeking higher initial yields may be inclined to expand their search criteria beyond the urban core, while investors thinking toward a longer-term recovery may seek urban assets with upside potential. MILLENNIAL MOVEMENT OUT OF DOWNTOWN ACCELERATED LAST YEAR Expectations for suburban house- hold growth were strong prior to the health crisis, underpinned by

population dynamics. Many of the aging millennials that helped fuel robust urban apartment absorption over the past cycle have matured into their family formation years. Those with growing families are seeking more space than the urban core can offer. This trend was boosted by the events of last year, as population density became less appealing and remote work and schooling crowd- ed living spaces. Many households in this situation became first-time homebuyers, assisted by low interest rates, pushing the homeownership up significantly in 2020. This surge in homeowner demand — combined with supply limitations imposed by higher construction costs and fewer existing homes on the mar- ket — raised sale prices and made single-family homes even less attainable. Families outside the margin of meeting the down-pay- ment requirement may opt to rent from a suburban multifamily prop-


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