New Multifamily Supply Wasn't Built for Hybrid Workforce
The pandemic altered living space needs in a way that significantly reduces the relevance of the supply currently hitting the market.
NEW YORK CITY–One of the speakers at our State of the Industry panel at the GlobeSt. Spring Multifamily conference this week got our attention when he declared that much of the new supply flowing into the market is not the right size to meet the new demands of renters.
“All of this new supply in the market is going to face a challenge because it’s not what people are looking for — a different type of product needs to be built to meet the new demands of the market,” said Michael Broder, CEO of RCKRBX.
“Across the country, according to our renter demand data, 67% of renters in every market are looking for a larger type than they were historically. It’s fundamentally upside down,” he continued.
Prior to the pandemic, there were 3.3 million Americans in remote or hybrid work. Today, there’s an estimated 98 million Americans in a remote or hybrid environment. “Think about what that means in terms of the amount of space they need to live and work,” Broder said.
After the session ended, we asked Broder to explain this conundrum.
When the new supply that now is cascading into the market was being built, multifamily developers followed the traditional strategy, he said, which was to build small units in a tight market to command the highest rent per square foot.
“They were thinking, ‘We’re going to build more smaller units.’ Fewer ones, fewer twos and fewer threes — if they built any [three-bedroom apartments],” he told GlobeSt. “Historically, that programmatic box has been a very stable performer.”
The pandemic altered living space needs in a way that significantly reduces the relevance of the historic model, Broder said.
“People aren’t looking for those one-bedrooms anymore; they’re not looking for those small spaces because they need a dedicated workspace at home,” he said.
“This is why you’re seeing concessions go up, this is why you’re seeing rents decline” in markets where new supply is being delivered, Broder explained, “because they have product that people don’t want, product that doesn’t align with their needs.”
He cited Washington, DC as an example of a market where there is an oversupply of one-bedroom apartments — 43% of the units in DC are one-bedroom, but only 15% of renters in the DC metro are looking for them and, in certain markets, it’s only 8% of renters.