by Dan Rafter
Younger consumers are choosing to rent in downtown Minneapolis, Chicago, Cleveland or Detroit. They’ve not making the trek to the suburbs of these communities to buy their starter homes. What is behind this trend?
Breck Hanson, executive vice president and head of commercial real estate in the Chicago office of Associated Bank, says that several factors are making multi-family more attractive to young people.
“I don’t know if we’ll ever, at least in the future, experience again the single-family-home craze that we saw in the late 1990s and early 2000s,” Hanson said. “The family unit has changed. People are having children later. People are less certain about the stability of their jobs. The appreciation of homes has either declined or slowed considerably. All of this has combined to make apartment living a more attractive option for people.”
At the same time, the new apartments hitting the market today come with higher-quality amenities, Hanson said. This has attracted some buyers who might otherwise have avoided renting.
“There are higher-quality finishes with today’s apartments,” Hanson said. “They are more like condominiums or single-family homes. People aren’t sacrificing a high-quality living environment by renting today.”
Indoor and outdoor pools, spas, game rooms, high-tech fitness centers and indoor/oudoor dog runs all come with today’s highest-priced new apartment rentals. Young renters flock to these amenities. And why not? Living in a new apartment complex today is like living in a luxury condominium building.
But there is some concern. Developers have been adding a steady stream of new apartment buildings to metro areas such as Kansas City, St. Louis and Indianapolis. Should we start to worry that developers are bringing too many new multi-family units to these cities?
Hanson isn’t worried yet. But he is watching new-construction activity closely. He points to his home market of Chicago. Construction of new multi-family properties in the city has been, as Hanson says, “pretty intense.” But even with so much activity, Hanson isn’t worried yet that multi-family construction is outpacing demand in Chicago.
“We haven’t seen a market yet that you can declare is overbuilt when it comes to multi-family,” Hanson said. “But we are watching for that now. Obviously, some markets have had more new construction than others. Banks are beginning to look at their exposure to a market and to a product type. They are being more selective in which projects and which development companies they choose to work with.”
The message? Fueled by the increasing appetites of young renters for multi-family living, expect developers to continue bringing proposals for new apartment complexes to the biggest cities across the Midwest. Expect, too, that banks and lenders will be keeping a close eye on these metropolitan areas. No one, after all, is eager for a glut of vacant apartment units.