Sunny outlook for suburban multi-family living.
By Lesley Deutch and Ken Perlman
We just published our Apartment Analysis and Forecast report, and our conclusion is in the title: Sunny Outlook for Suburban; Harsh Winter for Urban Apartments. We believe there is a further niche opportunity for suburban apartments — near rapidly developing new home submarkets.
The new home market continues to boom, and most builders are sold out of nearly all standing inventory, which means home buyers will often have to wait 9 to 12 months or more for their houses to be constructed. Our forecast for the new home market indicates steady and strong demand, with single-family permits up 10% in 2020 and another 9% in 2021. We expect mortgage rates will remain near record lows for the next several years, supporting healthy demand for new homes.
Many buyers choose to rent prior to moving into their newly purchased home, a situation that helped to create solid apartment fundamentals in many of the nation’s most robust housing submarkets. Here are some examples from across the country:
Wesley Chapel (Tampa MSA)
Located about 30 minutes north of Tampa, Wesley Chapel offers numerous master-planned communities targeting families and empty nesters. The submarket’s strong momentum is a function of attractive residential communities that offer suburban retreats with walking and biking trails, resort-style pools, good school districts, and a growing retail base all for home prices buyers can afford. Class A apartments in Wesley Chapel are fully occupied (96%+) with few concessions offered, despite a considerable amount of new construction in recent years. Lease-ups for new communities range from 17–19 per month, and leasing agents report a large number of renters are either home buyers, waiting for their homes to be built, or renters who hope to buy when they have the opportunity.
Durham, NC (Raleigh-Durham MSAs)
Located between the Raleigh Durham International Airport and the Research Triangle, Durham, NC, benefits from strong employment access, an emphasis on parks and nature, and a rapidly growing retail corridor. John Burns Real Estate Consulting currently rates Raleigh-Durham’s housing market as “Very Strong,” with builders’ sales continuing to outpace supply despite an average 9% YOY new home price increase. While occupancy rates for the overall market dipped in 2020, the demand for apartments in suburban Durham remains high. Occupancy rates for Class A properties we recently surveyed were 94% or higher with relatively few concessions.
Ontario, CA (Riverside-San Bernardino MSA)
Ontario and Rancho Cucamonga are established suburban locations with highly rated schools and some of the most desirable retail and entertainment amenities in the region. The Ontario Ranch MPC ranked 9th on JBREC’s list of the top 50 fastest-selling master-planned communities with 810 net home sales in 2019. Class A apartments in the Ontario/Rancho Cucamonga submarket are in excess of 93% with concessions that typically equal less than one month of free rent. Some of the newest projects we surveyed in recent months were averaging more than 25 new leases per month.
The pandemic and associated job losses still present risks to our forecast and especially for the renter population as a whole. However, we expect that the combination of low mortgage rates, a potential housing tax credit, consumer psyche shifting to fear of missing out (FOMO) on new homes, and potential student debt forgiveness will drive demand in the housing sector for the next few years. Strong housing demand may translate into stronger-than-expected apartment demand in the thriving suburban submarkets across the country.
Lesley Deutch is a principal at John Burns Real Estate Consulting. She may be reached at firstname.lastname@example.org. Ken Perlman is a principal at John Burns Real Estate Consulting. He may be reached at email@example.com.