Impacts of the ‘new’ economy on multifamily development in commercial real estate.

28 June 2023

According to Harvard’s Joint Center for Housing Studies, higher-income households have increasingly turned to the rental market in recent years, driving nearly 70% of total renter household growth between 2009 and 2019. The number of renters making at least $75,000 jumped by 48 percent over the decade, to 11.3 million. With this increase, the share of renter households in this income group rose from 20% to 26%. This shift in combination with data from McKinsey which found that nearly 60% of people work from home at least 1 day a week shows a fundamental change in the multifamily rental market.

The growing demographic of “renters by choice”, the impacts of the pandemic on work from home trends, coalesced with financial abnormalities like historical inflation, broken supply chains, and changing interest rate environments have altered the way multifamily builders think about the design and development process.

The biggest impact of recent economic trends is the planning of residential unit types, sizes, and related amenities,” says Focus’ Executive Vice President, Development Justin Pelej. “The developments we are pursuing today have well designed units, but they are considerably smaller in size and carry a smaller chunk rent when compared to units we designed a few years ago. Conversely, the amenities and shared spaces are much larger and far more sophisticated.”

Demographic and market shifts have impacts on design and construction

These trends require a more advanced understanding of efficient design and construction methods. Shrinking units can’t feel confined or unusable and luxe amenities can break the bank. Add to that picture shifting material costs, lead times, and market unpredictability there is quite a bit of risk on the table. With that amount of variability, it’s important to have the right development and construction team at the table when executing a commercial multifamily project.

At Focus, teams benefit from the collaboration of design, development, and construction professionals all under the same roof. As a project proceeds through the design process, our teams are working together to mitigate the risks of a shifting market while relying on 30 years of design and construction expertise to produce the most marketable product. This integration has produced benefits in the past but in today’s unpredictable market, effective collaboration can make or break a project.

“The need for early and effective communication throughout the process has increased, says Director of Preconstruction, David Hanner. “There has always been a need for clear communication, but there are more interactions throughout the process, more check-ins on material availability and pricing, and additional design iterations in response to shifting demographic needs.” Access to real time material and labor pricing ensures project forecasting is accurate and enables teams to adjust design as economic factors shift. Increased in-house knowledge of structural systems and building methodologies gives our teams more ways to adjust the economics of a building.

For instance, as a response to rising costs Focus utilized a different type of precast podium on a recent project in Oak Park, Il. This structural change reduced materials costs, installation duration, and labor cost allowing teams to reinvest those dollars in places where the project can reap the benefits. Places that future tenants can experience like the amenities where in this case, Focus was able to develop one the best package in the market. Without an integrated team, that option may have never been on the table.

Renter demands spur mixed-use development which requires better design and experienced developers

In addition to elevated amenity spaces inside multifamily buildings, modern renters want to be able to live, work, and play from their communities. According to a survey by the National Association of Realtors, “walkability” is a top priority when searching for a home and further, roughly half of respondents indicated they’d prefer to live in communities with smaller houses and smaller backyards, but within easy walking distance to local restaurants, retail, offices and arts and cultural institutions. Pair that with the inherent benefits to the localities, mixed-use is benefiting everyone. For example, a recent study found that Fresno, CA could increase its tax base by 45% per acre if it encouraged mixed-use development.

“I think changing demographic demands, together with the pandemic and the subsequent market uncertainty, has really created a unique opportunity for design collaboration,” says Pelej. “Municipalities, especially suburbs, want to see investment in their communities that matches post-pandemic consumer demand, and they see mixed-use development as both the solution and their competitive advantage.”

Pre-pandemic, most of the design discussions at a municipal approval level revolved around materiality and building height. While those aspects are still important, the conversations today are far more dynamic and revolve around energizing downtowns and providing authentic and sustainable experiences for all stakeholders in a community. According to Pelej, “this shift is extremely refreshing because it allows our design professionals to focus more time on urban planning and placemaking which subsequently drives high-quality, cohesive, architecture.”

Mixed-used development requires vast construction expertise

The shifting design needs in current multifamily development has required that builders become nimbler and more knowledgeable about the construction of multiple types of products. Over the last 30 years, Focus has built it all, and as an integrated developer and general contractor there are universal benefits for our own developments and those of our third-party clients alike. “Our team reflexively seeks collaboration with ownership and the design team. Regardless of whose project it is,” says Hanner. “We want to understand the pinch points and sacred parts of a project whether that be in cost, schedule, or some design component.” That collaboration endears a level of trust which allows teams to scrutinize any project as a true partner.

This approach doesn’t change for a traditional multifamily project compared to a more contemporary mixed-use project with multiple product types in one place. A recent example of that knowledge transfer comes from a third-party mixed-use tower where the HVAC design did not allow for the desired ceiling height in the office component of the project. According to Hanner, “we had experience with this type of design element based on a recent office tower of our own which we shared with our client. Ultimately, our knowledge of multiple product types and subsequent collaboration with our trade partners developed a solution to a problem which saved the owner from a costly change order and time delay.”

In a market where not only are the financial influences changing every day, but where market demands are also fundamentally shifting, it’s more important than ever to have as much knowledge at the table as possible. At Focus, an integrated model for design, development and construction enables our partners to have the most control over cost, product and ultimately outcomes. To learn more about our approach to commercial mixed-use development or to discuss a project of your own, please reach out today.

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