Development and Construction Trends in the California Multifamily Housing Market | Allen Matkins

1. RENT GROWTH HAS BEEN POSITIVE, BUT IS LIKELY UNSUSTAINABLE

Multi-family construction increased by 22% over a period of 6 months. Rent growth was positive in Los Angeles and San Diego. However, panelists agreed that this growth in rents would stop when tenant prices were out of the market. For this reason, many panelists limit their focus areas and avoid markets where rent is already high. That doesn’t mean developers are avoiding urban areas altogether. Remote work during the pandemic has allowed employees to work from anywhere, but the return to the office continues. Even if companies adopt a hybrid model with a few days of work in the office per week, employees will likely choose the convenience of living closer to work on a long commute of a few days per week.

2. DEVELOPERS MUST ADAPT TO RECALIBRATION OF CAPITAL

Development agreements change, but there are still development funds available. Convincing venture capitalists to invest in real estate can be more difficult today than it has been in recent years. Fewer players enter the market and transactions attract fewer bidders. In some cases, investors are reluctant to invest in buildings that incorporate new technologies if they cannot physically see the building. Labor shortages and construction costs continue to affect the timelines and speed with which investors will see a return on their investment. Those who have to wait longer can look for other opportunities.

3. TENANTS WANT SUSTAINABILITY

Tenants value sustainability and accessibility. Tenants want to know how their buildings align with environmental social governance policies and practices and what they get as a resident in the building. The committee noted a change in how residents use amenities. In the past, they preferred to buy their own telecommunications services. Now many prefer to have it at their disposal. Nor is it enough to provide an outdoor space where they can socialize and exercise. They want private spaces where they can meet in small groups. These changes increase the demand for services, such as exercise yards on the property, placing additional demands on the developer to incorporate these features into the design of the property.

4. DEMAND FOR AFFORDABLE HOUSING AND WORKFORCE REMAINS STRONG

Panelists agreed that there are opportunities in affordable housing and for the workforce, with one member noting that they can’t get away from the demand for these properties. Employees need housing that fits their budget and gives them access to transportation to work. However, multi-family developers face increasing competition from industrial properties, especially in urban areas where industrial land costs exceed those of residential multi-family. This is one of the reasons they are looking to domestic markets with robust transportation systems and solid fundamentals to support these properties.

5. TECHNOLOGY AFFECTS THE MULTI-FAMILY SPACE, BUT NOT AS MANY EXPECT IT

The smart home concept has made its way into the multi-family market, but the improvements are still not having significant short-term effects. Tenants can control their units from a smartphone, but the biggest effect of the technology may be how developers are using it to lower the upfront cost per unit while lowering operating costs. For example, one panelist decided to run an entire high-rise building on just one meter. This dramatically reduced the energy load and cost per unit without affecting the tenant experience.

6. MULTIFAMILY ALWAYS OFFERS MANY OPPORTUNITIES FOR DEVELOPERS

Despite the challenges of high construction costs, labor shortages and reduced capital investment, the multifamily market still presents opportunities for developers who find ways to control costs and meet expectations. tenants. They are also looking for creative solutions to these problems. Affordability by design could soon be all the rage, offering developers a way to keep building without relying so much on outside support or government subsidies.