More than two years after the pandemic shuttered offices, just 20% of the approximately 70 million workers - 56% of all workers – who can do their jobs from home have returned to their offices full-time, according to a Gallup survey. The June 2022 survey found that 30% of those workers were fully remote and 50% of them hybrid. While the future of where people will work remains to be seen, this shift to working at home at least part-time has already made an impact on property sectors including multifamily housing.
RCLCO, a real estate consulting firm, recently highlighted the implications for investors.
Among the most significant shifts in the multifamily housing market is the increased premium and higher demand for one-bedroom units over studio apartments.
“We’ve seen that renters have a preference for more space since they started spending more time at home,” said Jordan LaMarche, a vice president of RCLCO. “Single people want a space where they can work at home and couples who both work at home need more space.”
The inherent premium for apartments with larger square footage has widened over the last 10 quarters by an average of $50, according to RCLCO’s research.
“This is especially true in secondary and tertiary markets where people can more easily afford larger units,” said LaMarche.
The premium for one-bedroom vs. studio apartments is highest in high growth western markets including Denver, Austin, Los Angeles, Seattle and Phoenix.In addition, one-bedroom rents increased by double digits in 12 of the markets RCLCO analyzed from the first quarter of 2020 to the third quarter of 2022 year-to-date figures.
Design Following Work-from-Home Trends
Multifamily designs are beginning to adapt to new renter preferences, such as including a built-in desk space in each unit, said LaMarche. Architects are looking for unused floor space and creating alcoves where a desk can be inserted.
Developers are also adding more dedicated workspaces in common areas, including both communal work areas and partitioned spaces, said LaMarche. Some multifamily builders are partnering with WeWork and Industrious to develop coworking facilities within the common areas of their buildings.
“Some apartment owners are trying to monetize their amenity spaces by charging fees for individuals to use rooms for work,” said Alex Shaia, a vice president of RCLCO.
Another design change for new multifamily developments is the increased connection between indoor and outdoor amenity spaces to make it easier for tenants to access flexible spaces. Communities include walking trails and pathways that link designated indoor computer areas with both indoor and outdoor spaces with tables, chairs and desks that function for relaxation or work.
Remote Work Influencing Market Relocations
The mobility of employees and their ability to choose where to live is shifting and impacting different housing markets, according to RCLCO’s research. The relatively small percentage of workers who are permanently fully remote high earners who can live anywhere tend to look for desirable locations with a more affordable cost of living so their money can go farther. In places such as Boise, Asheville, and Bend, Oregon, 57% to 67% of people searching for homes are from out of the area, said Shaia. In addition, Shaia found a growing group of millennial “snowbirds” who work remotely for a month or two from an out-of-town short-term rental. Other professionals also look for places for working vacations for two weeks or so with good Wi-Fi and a workspace as well as recreational amenities.
As a result, some new housing solutions enticing investors blend apartments and hotels, such as short-term rental-friendly buildings and hotel branded home-sharing options where people can buy a unit and have it rented to hotel guests when they’re not using it. Some investors are opting to work with companies such as Whyhotel, in which a certain number of apartments are made available as hotel rooms while the rest are traditionally leased, all within the same building.
Retail and Office Opportunities for Multifamily Development
While grocery-anchored retail sites continue to thrive, even prior to the pandemic regional malls and “high street” shopping areas have been challenged.
“These declining retail categories offer an opportunity for redevelopment,” said Shaia. “For example, in Washington, D.C.’s Friendship Heights neighborhood, which is a historically high-end shopping area that’s now mostly empty, hundreds of multifamily units will be built over the next five to 10 years. It’s a great opportunity to invest in a high-income neighborhood with good public transit.”
A trend for offices is the desire for high quality spaces in a good location, said Adam Ostler, a vice president of RCLCO. Companies are willing to take less space to get better quality as an enticement for employees to return to offices, he said.
“Residential conversions are another good opportunity for multifamily developers, especially in municipalities that offer incentives for these types of projects,” said Ostler. In short, the multifamily sector, and other asset classes, are keeping on the evolving work-from-home trend and learning how to adapt to renters’ preferences.