Founder and CEO of American Landmark Apartments, one of the fastest-growing multifamily owner-operators in the United States.
Not long ago, apartments provided a sanctuary for renters longing to relax and unwind after work. Comfort, quiet and an appealing mix of social recreational amenities were top of mind for tenants in modern rental communities.
But the Covid-19 pandemic has changed the priority list. Now the ability to work from home (WFH) is a key consideration for renters of all ages, and a trend that will continue as employers adopt flexible and hybrid schedules.
In fact, a May 2021 survey of more than 20,000 tenants by RentCafe found that one-third of respondents said they were working from home either full- or part-time and would continue to do so in the future. However, 75% of tenants said they didn’t have a dedicated working space in their current apartments.
A Desire For More Space
What does this blurring of the lines between home and work mean for the multifamily rental market, and how can real estate investors capitalize on this trend?
First of all, it’s clear that tenants are now looking for more space. The RentCafe survey indicated that a third of apartment hunters are seeking rentals with an extra bedroom for a home office. That finding alone has important implications for the future of the U.S. multifamily market.
Not surprisingly, the tenants most eager to upsize were living in studios. In fact, 60% of tenants in studios said they wanted more space, along with 40% of respondents now living in one-bedroom residences. But they were not the only tenant groups wanting a larger unit with a dedicated work-from-home space. A significant share of two-bedroom renters — 22% — also expressed a desire to upgrade to a large abode, a trend that explains the tremendous surge in demand for single-family rental homes with three or more bedrooms.
Being able to have a separate work space gives tenants a better opportunity to disconnect from the workplace and return to their “home” lives, even if it only means closing the door and moving to another room.
Tips For Investors
When evaluating acquisition opportunities, multifamily investors now have another factor to consider in the due diligence process: how well a rental community can accommodate tenant demand for working spaces.
That analysis begins with a look at the current unit mix. A community with only studios and one-bedroom apartments may be less desirable than one with two- and three-bedroom residences for singles and couples working from home.
Next, an investor should conduct a comparative rent analysis. While larger units typically command higher rents than one bedrooms or studios, the difference may vary from market to market. In general, the pricing curve climbs more steeply in large urban markets such as New York City or San Francisco, where every extra square foot of space can command a higher rent.
In contrast, there is generally a smaller difference in rents between a one-bedroom and a two-bedroom residence in Sun Belt suburban markets. That makes larger units more affordable for tenants, including renters seeking to relocate from higher cost markets while still working from home.
Another consideration is the possibility of reconfiguring a building with smaller apartments. For instance, two studios or a one-bedroom and studio could be combined to create two- or three-bedroom residences that appeal to WFH tenants. However, this reconfiguring would need to be calculated into purchase costs.
Creating Co-Working Spaces
If the unit mix cannot easily be changed to create larger units, an alternative is to create dedicated co-working spaces in the community clubhouse or amenity area. An underutilized space, such as a lobby or restaurant, could be reconfigured for a “hoteling” office with desks, broadband connections and business equipment such as scanners and copiers. Residents could simply bring down their laptops, do their jobs in a supportive setting and leave their work behind when returning to their apartments.
The co-working strategy could satisfy the evolving needs of tenants at a lower cost than renovating a building or two. If demand is high enough, owners could generate a new stream of income by renting these new working spaces.
Regardless of the WFH approach, the community should have a technology infrastructure that can accommodate the growing demand for broadband service in all buildings, as well as the community center and outdoor areas.
Other Community Amenities In High Demand
The increasing popularity of remote work means residents spend more time on property — and that, in turn, has led to an increase in demand for other amenities and services that address the “play” part of the “live-work-play” equation. For example, incorporating some retail on property — such as a coffee shop or dry cleaner — reduces unnecessary car trips and provides residents with opportunities for social interaction.
Educational and recreational events — opportunities for personal enrichment in an intimate small-group context — are also in high demand. One approach that has been well-received in our communities is an “Artist in Residence” program, which offers creative workshops for adults, families and children at no cost to residents. In addition to building community and bringing people together for a fun class by a respected professional, the program also lends the property a sense of character or identity — which helps set it apart from more “cookie-cutter” apartment communities elsewhere in the market.
Also in high demand are technology-enabled (apps) services that allow residents to order food deliveries, send maintenance requests, reserve a spot in a fitness class or tap into other unique resident-only benefits and discounts. High-speed wifi and package delivery systems are also critical.
In any case, the work-from-home trend is reshaping the nation’s apartment rental markets, creating new investment opportunities in lower-cost Sun Belt markets.