In its Winter 2016 Multifamily Perspective report, JLL Research identifies three factors that could drive multifamily development in suburban markets.
While cautiously bullish for 2016, investor appetites for new product remains strong overall. Factors that are continuing to drive multifamily investment include constrained housing starts, strong leasing performance and demand shifts in demography, namely the impact of millennials. The vast majority of multifamily development has been focused in Central Business Districts (CBD’s), growing at nearly four times that of suburban markets. However, the delivery of more and more Class A product in CBD’s begs the question of developers: Where to next?
Top 3 factors driving suburban resurgence
To answer this question, JLL Research took a closer look at suburban multifamily markets to identify three factors that are likely to impel suburban multifamily development.
- Suburban demographics – It’s all about jobs. Absorption trends currently demonstrate that the demography, economy and housing landscape of Sunbelt markets, like that of Texas, remain favorable. Furthermore, employment gains in these as well as Western Tech markets are strong.
- Affordability – The second driver of potential suburban development is affordability. Due to strong market fundamentals, multifamily rents have increased at a faster pace in 2015 than at any point in the last eight years. However, marginal wage growth, constrained single-family housing development, and increasing single-family housing prices have reinforced the relative attractiveness of renting.
- Public transit – As a significant driver for multifamily development in suburban markets. Product proximate to public transit is key for markets with dynamic or emerging urban cores or employment nodes with strong intra-market public transit infrastructure. While not applicable in every U.S. market, the accessibility of transit is a crucial consideration for some investors to identify property-level advantages that attract and retain residents.
This being said, suburban markets have not been entirely ignored by multifamily developers up to this point. In fact, relative to urban market counterparts, the pricing gap between urban and suburban rents has tightened. This trend has been observed across Houston’s west and northwest submarkets, and increasingly on the east side.
For 2016, however, suburban multifamily development is still well-positioned to benefit from the impacts of shifts in demography, looming affordability concerns, and expanding public transit.
Source: By: Greg Austin, JLL Houston.