REAL ESTATE NEWS

Understanding data to analyze trends is a key aspect of commercial real estate today. That's what research firm RCKRBX is doing for the multifamily space, from migration to tenant trends.

The firm's founder and CEO, Michael Broder, who will be a speaker at GlobeSt.'s April 1 multifamily panel in New York City, told GlobeSt. based on his recent findings that some traditional strong gateway markets like Washington D.C. are trying "sort things out" in the post-pandemic world as those regions have lost residents since the public health crisis. This could be due to a number of factors such as the cost of housing or the desire to move to a warmer climate.

TRADITIONAL GATEWAYS ARE STABLE WHILE SOUTH THRIVES

However, those markets are hardly in ruins. Broder refers to the traditionally categorized gateways as areas that are "more on the rebound and stabilization side." Namely, he added that he has "cautious optimism" that Washington D.C. will "rebound" from its current "static" state.

Broder, which also is focused on the Mid-Atlantic and Northeast regions, highlighted some of the southern regions as the ones that are seeing the most demand, currently.

"The usual suspects of Charlotte and Raleigh, Durham, certainly within Florida; you're seeing a significant uptick in demand around West Palm Beach, and that has a lot to do with more price sensitivity relative to other areas of Florida, which is why I think West Palm is becoming an area of growing demand and interest, not just from renters, but also investors and developers," he said while adding "Tampa is also another one."

Florida in recent years has benefited from high-net-worth individuals moving to the state, also known as the "wealth migration." Plus, Palm Beach County is standing out. A report from Compass Palm Beach found that the county leads all 3,000 others in the nation in attracting wealth — with more than $39 billion in income and value flooding into the region during the post-pandemic era. Meanwhile, it's also important to note that while many Sunbelt markets have benefited from a population surge — oversupply there has become an issue for multifamily landlords.

THE NEED FOR LARGER UNITS IS CONSISTENT

But one thing remains consistent regardless of the region — the demand for larger units is superior across the board compared with smaller ones, according to Broder.

"I think the evidence to that beyond our own data, is just how difficult it is for owners that have a new product on the market to reach that stabilization or full lease-up ratio, particularly given the lack of activity around the studios and one-bedroom units, which, as we all know, tend to be the highest density or number of units in any particular project, just generally speaking," he explained.

"I think that trend is going to continue for the foreseeable future."

The need for larger units has picked up since the pandemic, as remote work has become more popular.

Today's world now "requires people that are renting apartments to have more space," Broder said.

"Nobody wants to work out of their bedroom or kitchen table. And so you see that that creep up in terms of larger units to accommodate the new live-work behaviors that so many people have adjusted to."

The remote work demand is coupled with home affordability continuing to be out of reach for many families. Instead of opting for houses to own, some are opting to rent larger spaces instead to save money, according to Broder.

FIGURING OUT LONG-TERM PROJECTIONS

The challenge today for a multifamily analytics firm like RCKRBX is weighing the significant shifts in the market since the pandemic and figuring out how relevant that information will be a few years from now from a behavioral and economic perspective. It's not just about the influx of supply that's been delivered across the multifamily sector over the last couple of years — but Broder said it's about being "forward-looking" with its data and estimating what will happen in three or four years from now.

"We can project that from a quantitative model based on leasing horizons of all of our polling samples," he said.

"I think for us, we're really focusing on our kind of a couple of key issues to assist owner, operators, investors, etc. From the investment side, it's all about understanding downstream risk, and how do I mitigate that risk?"

Some other specifics include finding the right properties for particular renters and getting out of "negative lease up spirals" due to the composition of those assets.

CAUTIOUS OPTIMISM IN THE SHORT-TERM

For the multifamily sector, in the short term, Broder is expressing "cautious optimism." He has been noticing that deal volume has been up recently, while the velocity for transactions hasn't necessarily followed suit.

"I think the fact that people now are more actively transacting is a good sign for what's to come downstream, although what we're seeing is a lot of properties changing hands at a higher rate or volume than perhaps new development projects being initiated."

Uncertainties remain such as what will happen with inflation, the impact of President Donald Trump's tariff implementations, and other actions on policy by the new administration. Broder is hoping the multifamily sector transitions from what he calls a "crawl and walk" stage right now to a "run stage" by the end of 2025.

Source: GlobeSt/ALM