I hope everyone had a great holiday and enjoyed some quality time with friends and family. I was able to disconnect and spend a week in FL with my family. The time off is great, but I’m eager to get back to work and tackle the big initiatives and goals I have for the year ahead.
In my first post of 2020, I want to make some predictions and point out the trends I see continuing within the multifamily space over the next 12 months.
Here are my 10 multifamily predictions for 2020.
- The End of the ‘All White’ Kitchen: How many value-add projects do you see with the same ‘all-white’ look? This typically includes white shaker cabinets (top and bottom), stark white walls, white subway tile backsplash, and the white quartz counters with shiny silver speckles (you know the ones I’m talking about). This look has been trendy the past few years, but just like the dark walnut cabinets and dark granite counters before it, it will fall out of style (until it comes back in style 10-15 years from now).
- It Becomes Harder to Make Money in Multifamily: This one is obvious, but the easy money in multifamily has already been made this cycle. Operators aren’t going to luck into good deals and they’re not going to be bailed out by compressing cap rates or unexpectedly high organic rent growth. As Kevin Kisner said, “this ain’t no hobby fellas”. Success in value-add multifamily investing in 2020 will require flawless execution.
- Technology Continues to ‘Eat the Multifamily World’: Technology, and software in particular, is disrupting all aspects of the real estate business. This will only accelerate. Here are a few aspects of the business I see being further disrupted by software in the coming year:
- Concierge services and resident events have become a critical differentiator as the expectations of renters have changed. HelloAlfred, Mobile Doorman, and Buttefly MX are all players in the space.
- Package Handling. The technology has quickly shifted from package lockers to automated package rooms like HelloPackage to delivery services like Fetch.
- Resident Payments. Services like Flex are disrupting the rental payment space. There’s no reason residents should have only one payment option.
- Online marketing. Apartment owners don’t have a choice and must advertise on expensive internet listing services like Apartments.com who spend a lot of money to be at the top of the Google search results. Organic search and reputation will become increasingly important as ILS’s become less important.
- Leasing Tours. Virtual and augmented reality will change the way prospects tour communities.
- Spaces will Become More Adaptable: The combination of higher construction costs, smaller average unit sizes, and evolving demands of modern life have led to the emergence of multi-functional furniture systems. Ori Living, Bento Build, Ikea, Resource Furniture and others are all involved in this space. Residents want the ability to host friends, work, and sleep all within one curated space, which requires movable and multi-functional furniture systems. On the amenity front, spaces are no longer single-dimensional. Instead, areas are designed for work, hanging out, and hosting events. Movable walls like the NanaWall allow spaces to be easily segmented or opened up.
- The Suburban to Urban Trend Begins to Flip: 30-something Millennials have started to form households and have kids and just like the generation before them, they’re going to move to suburbs and buy or rent a home. The homeownership rate for married couples with 2 or more kids is ~80%. The urbanization trend will begin to flip, as Millennials move to walkable suburban locations.
- There is Disruption in the Short-Term Rental Business. The short-term rental business has received a lot of attention and companies like Sonder and Lyric have attracted significant investment and grown rapidly. While it’s unfair to compare these companies to WeWork, the business model of signing long-term leases then carving up that space and leasing for shorter durations has its challenges. I anticipate some growing pains in this space during 2020, as the industry naturally matures and we begin to separate the winners from the losers.
- Affordability Becomes a Bigger Issue and Rent Growth Continues to Slow. Rents have risen for 11 of the past 13 years (46% cumulatively), outpacing income growth, and creating an affordability gap. A growing supply pipeline will help slow rent growth, but the new supply is focused mainly within the Class A space in gateway cities. Meanwhile, the supply of Class B and C communities has stalled. But the depth of the renter pool is not unlimited. As older vintage communities undergo value-add renovations and compete for tenants, concessions will increase and rent growth will slow.
- The Industry Forces Owners to Focus on Green. The climate crisis is real and buildings are one of the biggest producers of carbon emissions. The industry will begin to force multifamily owners to focus on green initiatives. Owners will utilize cheap solar and programs like the Fannie/Freddie Green Loans will require owners to meet the required energy/water savings by measuring savings.
- The Rise of Co-Living. Co-living is not a new thing, but I see it flourishing in 2020 and beyond. Co-living is able to deliver affordable living in a differentiated way by focusing on targeted niches. Companies such as The Wing and HubHaus are examples of companies who appeal to specific subsets of the renter pool.
- Renters Gain More Flexibility. Apartment life is generally inflexible. Residents should have the ability to customize their space. They should be able to choose from different modular furniture sets, accent wall colors, and a menu of smart home technology (thermostats, lights, locks, etc.). Furniture rental companies like Feather provide residents the opportunity to design their space with high-quality furniture without the price tag. Renters will gain access to more flexible lease terms, potentially even including units for daily rentals. Technology will make all this possible and seamless for the renter.
So there you have it. These are 10 trends I see advancing over the course of 2020.
It’s an exciting time in the multifamily business and the great run experienced over the past 10 years should continue through 2020. New technology, increased competition, and shifting resident demands will continue to push the industry forward.
To be successful, owners must think about the future, put the resident first, utilize new technology, and relentlessly innovate.
Cheers to a great 2020!