Will the need for “echo boomer” housing generate new apartment projects in downtown Frederick?
When it comes to the multifamily segment, I’ve got good news and better news.
The good news is that the multifamily sector has without a doubt made a full recovery from the bust and resulting recession we are still mired in. Actually, it has been one of the few areas of the economy to benefit from the recession.
Apartment rentals have skyrocketed as a result of foreclosures and tightened credit markets. As rents climb and vacancies drop, commercial real estate investors seeking stable assets and income are snatching up apartment buildings.
Given that the housing market is still relatively flat—and most likely will be until the foreclosure inventory flushes out of the system and we begin to see healthier growth in jobs—there is every expectation that demand for apartments will remain fairly high.
The better news? Multifamily properties are expected to remain great investments even after the housing market rebounds, thanks primarily to young “echo boomers” entering the job market and peaking around 2016 or so.
CoStar Group, the real estate analytics company we follow at MacRo, does not publish regional market reports on the multifamily segment, but their economists touched on the D.C. market in a recent webinar. The Washington, D.C. real estate market as a whole has been fairly sheltered from the recession. There are virtually no distressed multifamily assets in D.C., and rents remain high.
In fact, the D.C. multifamily market has been so strong that developers may have gotten a little overzealous. With 3,000 new apartment units delivered so far this year in D.C., vacancies are starting to tick up.
As for the Frederick market, although 2011 saw strong multifamily sales, there have not been any sales of Frederick apartment buildings yet this year. Westerleigh Apartments on South Street is currently listed at $1.6 million with a cap rate of 8.4%, but as far as I know there aren’t any other multifamily assets of that size listed in Frederick.
With investor interest in the multifamily real estate segment so high, and inventory so low, it stands to reason that developers will explore Frederick County as a potential market for new apartment projects.
The targeted to the 20-something market and billed as high-end workforce housing. These tie back to the echo boomers we mentioned. The micro apartment trend is also being fueled by single empty nesters. In fact, experts are predicting that a much larger percentage of new household formation going forward will be singles and childless couples, and developers are trying to get ahead of that trend.
Apartment buildings featuring sleek high-end micro studios have been very successful in San Francisco, Boston, and Washington, D.C.—selling like hotcakes in fact. Mayor Michael Bloomberg just this past summer changed zoning ordinances in New York City to allow for micro studios, and announced a design project in an excellent P.R. campaign to entice developers to jump into the market.
Steven Overly, a Washington Post columnist and recent college graduate, has been documenting his struggle (and that of other young professionals) in finding adequate and affordable housing in the district. His series in the Washington Post is an interesting read if you really want to know what motivates them.
No one would argue the fact that there is already a need for high-end workforce housing in Frederick County, particularly downtown. But would studio apartments be as popular in Frederick as they have been in Washington D.C. and Bethesda? Are there enough young professionals and singles out there to fuel demand? What do you think?
Rocky Mackintosh, President, MacRo, Ltd., a Land and Commercial Real Estate firm based in Frederick, Maryland. He is an appointed member of the Frederick County Charter Board. He also writes forTheTentacle.com.