Suburbs May Excel CBDs in Apt. Metrics
By Paul Bubny | National
Last Updated: January 30, 2015 06:12am ET
CHARLOTTESVILLE, VA—Urban multifamily is hardly losing its edge, but lately
the industry has gotten the memo that being in the suburbs is no bad thing. A panel of experts at last week’s National
Multifamily Housing Council 2015 Apartment Strategies Outlook
Conference elaborated on the premise that development outside the urban core is
in fact thriving, contrary to widespread perceptions, and SNL Financial
charted similar territory in a recent report on multifamily REIT
activity.
“The suburban thesis, and the fundamentals driving it, came into sharper
relief in October when executives at a blue-chip apartment REIT, AvalonBay
Communities Inc., said the company would shift its development
emphasis toward the suburbs, partly as a result of rent-growth trends and new
supply in the cities,” according to the SNL analysis under the byline of Jake
Mooney. While AVB was not likely to walk away from its urban development
already in progress, executives’ comments during the REIT’s third-quarter
conference call underscored the point that “there is still money to be made in
the land of low-rises.”
As if to underscore the point, AVB reported earlier this week that it began
construction on three new projects during Q4, at a total cost of $168.3
million. All three were in suburban markets: Avalon Green III in Elmsford, NY,
north of Manhattan; Avalon Union in Union, NJ, approximately 20 miles west of
the city; and Avalon Princeton in Princeton, NJ, halfway between New York and Philadelphia.
During AVB’s Q3 earnings call in October, according to SNL, company
executives cited data from Dallas-based Axiometrics.
“According to Axiometrics, suburban apartment occupancy levels, which lagged
urban occupancies since before the last decade’s downturn, caught up in 2013,
and suburban outperformed urban through much of 2014,” Mooney wrote.
Among the participants at the NMHC panel on suburban apartments were two
experts from another multifamily analytics firm, MPF Research,
which recently published a study of “good” suburbs and how they compare to
CBDs. “’Good’ suburbs perform in line with CBDs because they share many of the
same characteristics: more jobs, higher incomes, higher home prices, more
amenities and proximity to major highways or rail stations,” according to
Carrollton, TX-based MPF.
The company’s study of the nation’s top 50 metro areas defines “good”
suburbs as submarkets outside a CBD that had two factors in common: “They’re
located within economically healthier metro areas (those with net employment
growth of at least 3.0% over the past six years) and have average monthly rents
that top their parent metro’s norm. It’s a fairly simple line of demarcation,
but it tells a compelling story.”
That story is in contrast with the track record of weaker suburbs, and Jay
Parsons, MPF’s director of analytics & forecasts, made the point
during the NMHC panel that a common error is to paint all suburban markets with
the same brush. In fact, he said, “not all suburbs are the same.”
Over the past four years, a time frame that includes the current up-cycle,
“both CBDs and high-rent suburbs in economically healthier metros averaged
year-over-year rent growth of 4.2% compared to 3.8% in lower-rent suburbs,”
according to MPF’s report. “In economically weaker metro areas, CBDs notched
average rent hikes of 3.7%. High-rent suburbs in those metros averaged growth
of 3.0%, while low-rent spots came in at just 2.5%.” The correlation between
high-rent suburbs and CBD product also remains consistent across an eight-year
span that includes the downturn.
