The explosive growth of rental apartment buildings over the last few years has taken everyone by surprise. After the housing market crashed, more people opted to rent than prior to 2009, and net absorption soared in the early years of the recovery, including 2010 and 2011. Millennials in particular seemed to eschew the suburbs, preferring new multifamily buildings in the urban cores with both local amenities, such as proximity to work and access to public transportation, as well as in-house amenities such as doormen, storage units and bike rooms.
Given the lead time needed to build new projects, new supply did not start to rebound until 2013, after which new supply accelerated, adding 194,500 units in 2015, with another 258,000 units expected this year. Much of the new construction is concentrated in 12 markets, including Houston, Dallas, New York, Austin, Seattle, Los Angeles, Atlanta, Phoenix, Charlotte, Nashville, Chicago and Denver that together added 42 percent of the new supply in the metropolitan U.S. in 2015.
Although the anecdotal story of Millennials preferring downtown living has been told over and over, it has not been easy to confirm this theory with numbers. What can be analyzed in the Reis new construction data, however, is the shift in amenities that landlords have included in their new buildings over the years. Since the new supply was concentrated in the 12 metros listed above, we parsed the data by geographic grouping: large cities (New York City, Los Angeles and Chicago); Texas (Austin, Dallas and Houston), Southern U.S. (Charlotte, Atlanta and Nashville) and Western U.S. (Seattle, Phoenix and Denver). In fact, the numbers tell a compelling story.
The amenity that has lost considerable favor over the years: fireplaces. Only 4 percent of the new buildings built in 2014 had fireplaces compared to 41 percent, on average, in the early 2000s. One might think that this may have to do with the geographic concentration of new construction in the Southern half of the U.S., but when parsed by geography, the Northern cities had just as few fireplaces built in as the Southern areas. This may be due to a higher propensity of high-rises, which cannot accommodate fireplaces, but also, building codes have gotten stricter over the years.
Another interesting shift is that more buildings have in-unit laundry machines, while fewer have community or in-building laundry. In 2014, 70 percent had laundry in the unit and only 10 percent had laundry rooms; in the early 2000s, 57 percent had in-unit laundry while 33 percent had a laundry room; the remainder had washer-dryer hook-ups only. This convenience is hard to quantify, but its appeal is universal!
Another amenity that is featured in more new buildings is a doorman. In 2014, 11 percent of the new buildings had a doorman, or 2.8 times the number of new buildings added in the early 2000s (4 percent). While many associate a doorman with an urban building, this may not always be the case. The doorman amenity increased only in the Texas and Western markets. Moreover, the percent of buildings with security patrol declined from 31 percent in the early 2000s to 19 percent in 2013-2014.
The other large shift was in buildings with an elevator. Only 17 percent of the new buildings in the early 2000s had an elevator. This compares with 38 percent of the new buildings with an elevator in 2013-2014. This ratio did not change much for large cities, but it did expand in the Texas and Southern markets. This suggests that there were far more high-rises built in the last few years in these metros compared to the early 2000s.
An amenity that fell out of favor was a playground. This suggests that landlords are not targeting families. The ratio of new buildings with a playground did not change in the large cities, but did so in Texas, Southern and Western markets. Far fewer new buildings have parking lots as well, although the ratio of new buildings with parking garages did not change much. Parking garages are generally assumed to have an added fee while parking lots may not. This again suggests that more new buildings were built in the urban core, targeted to those who may prefer to give up their car.
Still other amenities analyzed, including storage rooms, health clubs and pet allowance, did not change much over the years.
The analysis confirms what many have presumed: that more young people are renting in urban areas, in high-rises with access to public transportation. Moreover, the changes by geography and metro size suggest that that developers and planners in the smaller metros are trying to emulate those in large cities by adding some amenities—elevator, doormen and laundry machines—and removing obsolete ones such as playgrounds and parking lots. It will be interesting to see if these trends continue to change or if things shift in a different direction five years from now. We hope to revisit this study then to see.
Barbara Byrne Denham serves as an economist and Michael Steinberg as senior analyst with Reis, Inc, a provider of commercial real estate data and analytics.
