Timing is everything for apartment investment. Job losses and unemployment claims put many apartment renters out of work, but extended eviction moratoriums and government stimulus have helped them keep their homes. These factors have resulted in our revised 2020 forecast for stable rents in many MSAs. Multifamily construction in many markets surged over the last few years (in many cases a response to affordability challenges), and capital markets and banks are still backing new construction. Interest rates are at historic lows, drawing renters into homeownership. We believe there are suburban and urban opportunities for construction and investment in the apartment sector. It all depends on timing.
Short Term (1–2 Years): Suburban Space
The demand for suburban apartments has been growing since the pandemic began. Renters are seeking larger units (2 and 3 bedrooms) for work-from-home spaces and easier outdoor access. Walkability, which is often synonymous with density, is less appealing as renters seek more space and stores, restaurants, and bars are not open anymore. As an example, Uptown Charlotte and its immediate suburbs have the most concessions in the MSA (often a month or more worth of free rent), while concessions in the far-out suburbs like Iredell and Gaston County are substantially less (typically no more than one-half month). We expect strong suburban demand to continue while the pandemic remains a threat.
Longer Term (1.5+ Years): A Social Renaissance?
At the start of the pandemic, more than one million 23- to 30-year-olds moved back in with their parents. This age group is ready to move back out and will likely do so post-COVID. In our demographics book Big Shifts Ahead, we call this generation born in the 1990s Connectors because their lives revolve around connecting with friends and family. The Connectors are the largest generation (by decade), comprising nearly 45 million adults. Post-COVID we expect apartments in more urban areas will appeal to younger residents who miss their social interactions. And as the job market improves, apartments in the city centers will be closer to employment concentrations. We predict the Connectors will be searching for more affordable apartments (smaller) close to retail and entertainment—the exact apartments that are struggling the most today.
Renter preferences changed rapidly when COVID hit. We are closely watching for potential changes after COVID. For owners and investors, timing has never been more important.