Developers Begin Looking to the Midwest
Digested from National Real Estate Investor
With completions mounting in the top cities, apartment construction picks up in new markets.
As cities on both coasts experience a glut of apartment supply, developers are beginning to look inward. Places such as the Inland Empire in California, where developers have started 2,000 new apartments per year over the past few years, and Midwestern cities, including Minneapolis, suddenly hold appeal for yield-starved developers.
Even with 5,000 apartments built annually during the past few years, there is still opportunity along metro’s planned light rail line expansion toward the southwestern suburbs in Minneapolis. Roughly 300,000 jobs have been created there in this economic cycle.
“Based on research conducted by Hoyt Advisory Services and commissioned by NAA and NMHC, the Riverside-San Bernardino MSA will need 40,500 apartments from 2017-2030 to keep up with demand,” says Paula Munger, Director, Industry Research & Analysis for NAA. “That averages out to about 2,900 per year, far more than has been delivered in recent years. The same goes for Minneapolis-St. Paul, with forecasted demand for 70,783 apartments by 2030. That means there’s enough demand for apartments that the current pace of construction, based on RealPage’s figures, will have to continue for the next thirteen plus years.”
When developers build in top coastal cities, they are looking at more niche product types, including larger apartments and townhouse developments.
“In terms of product type, demand for larger units is expected to continue given that half of total apartment demand will be driven by the 65+ age cohort,” Munger says. “Research has shown that this age group, despite downsizing in their empty nest years, prefers more space than their younger counterparts.”