Suburban Apartments Have a Bright Future October 23, 2017

By Jay Madary, President and CEO

In recent years, there has been a lot of talk about millennials and their preference for downtown apartment living. And it’s certainly true that millennials’ desire for vibrant, 24/7 urban environments has led multifamily communities in these areas to perform very well during the past half decade.

With all of the attention given to the thriving downtown apartment market, one could be forgiven for thinking that its suburban counterpart is perhaps past its prime. That would be a mistake.

Each suburban market and community is unique, of course, but generally speaking the multifamily industry has a promising future in the ‘burbs.

A Great Place to Raise a Family

When you’re young and single, the attraction of a major downtown area – with its abundant restaurants, nightlife and entertainment options – is undeniable. But as you get older, get married and start a family, the suburbs are bound to exert a profound appeal, even to millennials.

A recent Bloomberg article with the headline “Suburban Offices Are Cool Again” notes that many major employers have realized that to attract older millennials, their offices need to be in the suburbs. “For millennials, the suburbs are the new city, and employers chasing young talent are starting to look at them anew,” the article says.

This phenomenon of millennials moving to the suburbs as they age is one that stands to push occupancy and produce healthy operating fundamentals in suburban apartment communities.

An Appealing Investment

In its mid-year report on the U.S. apartment market, the commercial real estate brokerage firm JLL noted that investor interest in suburban communities is increasing. During the first two quarters of this year, garden-style communities – those typically found in the suburbs – accounted for 70.6 of U.S. multifamily investment sales. “This figure is the highest on this metric since 2009,” the report notes.

Investors no doubt are attracted to the generally lower sales prices that one finds in the suburbs – which pave the way for higher returns. They also like the fact that suburban development has been relatively restrained in recent years while developers have pursued opportunities in urban cores. Additional food for thought: according to the Institute of Real Estate Management, the net operating income (NOI) for garden-style apartment buildings increased by 5.3 percent last year, the highest percentage increase of any apartment type.

At JVM, we believe strongly in the enduring, long-term health of suburban, garden-style apartment communities. They will always be viable as long as you’re in the right location with the right schools and the right amenities. Our portfolio is filled with these types of properties in the Chicago, Cleveland, Kansas City and Indianapolis metros. Through countless economic cycles, they have shown strong operating fundamentals and delivered outstanding returns.

Urban apartments may have grabbed all the headlines and attention in recent years, but as millennials age a certain truth will again become apparent: suburban apartments will always have a critical place in our nation’s housing stock.