​It’s no secret that many markets across the country have serious shortages of housing for their workforce populations.  
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“Most cities and regions have fallen behind on housing delivery,” observed Daniel Parolek, architect, urban designer and author of Missing Middle Housing: Thinking Big and Building Small to Respond to Today’s Housing Crisis (2020).  

impacts those who want to buy homes rather than rent too, notes Nicholas Julian, senior program manager for land use at the National Association of Home Builders. “A staggering 96.5 million households, or roughly 73 percent of all U.S. households, cannot afford a new home at (the current $425,786) median price point,” Julian remarked.
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Julian and Parolek agree that adding missing middle housing to our nation’s stock can help ease the shortage. “These are homes that are more attainable for valuable members of your community including teachers, nurses and firemen,” Julian suggested. “Missing middle housing units, like duplexes and townhouses, may be what is attainable as ‘starter housing’ for folks entering homeownership for the first time these days.” 

These dwellings can also suit college students, young renters, seniors and young condo buyers. “There are many families who are doubling up in households or with roommates due to affordability,” commented Jessica Lautz, deputy chief economist for the National Association of Realtors. “More affordable solutions may allow young adults to leave the nest or roommates to have household formation independently.” 

Defining missing middle

Missing middle has two meanings: The first is Parolek’s, which is housing that bridges the functional gap between detached single-family homes and mid-rise complexes. It’s the duplex to fourplex, townhouse and courtyard apartment, compact live/work spaces and right-sized buildings that fit architecturally into low-rise neighborhoods with detached single-family homes.

It’s also defined as housing in the middle of the price range, between subsidized affordable units for those at or below the poverty level and luxury units for the affluent. There’s a sweet spot where these two definitions converge that millions of would-be tenants and homeowners that serve us all in our cities’ commerce and civic workforce compete to live in.

Enhancing livability

The goal is creating missing middle projects that enhance livability. They tend to fit well into walkable neighborhoods with coffee shops, restaurants and small markets safely accessible on foot. Pocket playgrounds every quarter mile and conveniently located co-working spaces make these communities appealing to many prospective residents, the architect notes, and potentially engender less development opposition from established neighborhoods.

“In our world, where NIMBYs are everywhere and they push hard against any non-single-family projects, the size, scale, and typology of these ‘house scale’ buildings support an easier path to rally community support, especially those that are predominantly single-family home communities,” Parolek remarked.   

David Spence, CEO of Dallas-based Good Space, renovates missing middle rentals in one of the city’s emerging neighborhoods. Spence attributes the success of his missing projects, including one that became a case study for Parolek’s book, to an emphasis on quality and detail.

“We’ve always spent beyond the market on renovations, and it has always worked out in the end in the form of sufficient rents and potential [building] sales prices,” he shared. “We squeeze in a ‘full appliance package’ (e.g., washer/dryer, central HVAC, microwave, vent hood, etc.), but parking is scarce, usually uncovered, and sometimes curbside. There’s no fitness center, no palatial bathrooms, no dog park.” 

But the firm provides quality in other ways through restoration of old fixtures and finishes, a sense of community, lively color schemes. Since these features don’t cost as much as much as a swimming pool and jacuzzi, Good Space is able to control their basis.  

Missing middle demographics

Parolek sees missing middle housing especially appealing to single- female households, an often overlooked segment, he finds. “Keep in mind that 30 percent of most markets are single-person households,” explained. “A well-designed small unit with higher-quality finishes is ideally what they want. They also like the built-in sense of community and security.”

Downsizing Baby Boomers are another good market, he points out. “They are looking for walkability to amenities, a sense of community, and the ability to lock off the unit and travel without having to worry about maintenance,” he explained, noting AARP has included missing middle housing in its Livable Communities Initiative.  

Another niche Parolek identifies is the household seeking a car-free lifestyle. Walkability and easy transit access is key for these prospects. Opticos-designed Culdesac Tempe,  a 650-unit Arizona master-planned community. “It will be the largest car-free community in the United States when completed,” he commented.

Last, but definitely not least, is the multi-generational opportunity, where grandparents can live close to their adult children’s families while having their own place in the same community. “Missing middle has historically provided great opportunities to deliver multi-generational housing and will also do so in the future,” Parolek predicted. He sees that encompassing different housing types that can be flexibly combined and separated as kids go off on their own, boomerang kids return, and childcare or eldercare support is needed.

Private and profitable

One point Parolek is eager to make is that these missing middle projects can definitely be built profitably since they are not dependent on nonprofit organizations to bring them to fruition, like many affordable developments, and they can provide marketing opportunities to sophisticated renters with no competition.
“When we opened our first renovated apartment building in 1996,” Spence recalled, “we assumed—based on patterns of the day—that our tenants would preponderantly be gay men moving from similar in-town neighborhoods. As it turns out, 75 percent of our first rent roll came from suburban addresses and 60 percent were single, straight women. While we definitely skew ‘urban’—artsy, alternative, adventurous—our rent roll has remained conventional in many ways:  educated, fiscally responsible, generally sober, 30s-ish, upwardly mobile, connected to the community, etc.”

While many missing middle projects have been built by smaller local firms like Good Space, Parolek also recommends them being integrated into larger master-planned communities and attracting larger regional and national builders. He sees that as a better development model and competitor to single-family build-to- rent that may be more appealing to city halls and statehouses.  

Jeff Kottmeier, senior vice president with John Burns Research and Consulting, points to employers acknowledging the need for attainable workforce housing in their conversations with economic development teams. “Some companies are coming to the table saying, ‘I’ll build x units of apartments or homes’ when constructing a new manufacturing facility,” noted. “We’ve seen that in some of the consulting studies we’ve completed in manufacturing towns.”

Rezoning and other challenges

Two of the reasons why this category has lagged are economic and regulatory barriers, though cities and states are looking hard lately at zoning changes to generate more housing opportunities. “Recently passed state legislation allows up to four units on any single-family lot in Oregon, California, Nebraska, and Washington,” Parolek reported. “A few other states like Montana and New Hampshire have legislation in the works.” He’s working with other cities to remove policy, planning and zoning barriers for missing middle housing development, he adds.

Julian calls re-zoning the low-hanging fruit of the housing affordability challenge. “Simply changing codes to legalize housing that is not the traditional large single-family home on a large single-family lot will allow housing that is naturally less expensive,” he observed “It is not the be-all and end-all, but there is little downside of zoning reform to allow missing middle housing development if housing affordability is a true priority.”

The NAHB executive notes that, for most home builders, there is little control over cost inputs like development fees, labor, materials and land. “Municipalities have the ability to alter codes and land use policy to make it legal to build smaller units on smaller lots, naturally producing more affordable housing,” he said.

New construction faces a particularly difficult route due to the need for land, regulations, and then basics such as material costs, according to NAR’s Lautz. “Adaptive reuse may be an easier route in some communities where there are existing vacant properties that can be rezoned for higher density residential housing,” she noted. 

Some cities, are encouraging infill/density where existing townhomes are torn down and rebuilt, adding an additional floor and more square footage. “Washington, D.C., is an example where you see homes with a fourth or fifth floor that can be rented as a single townhome or separate units,” Kottmeier said.

The biggest cost barrier is that any three-unit or larger housing types trigger the use of commercial building code, Parolek lamented. “We obviously do not want to create dangerous living environments, but it seems like codes make it far too expensive to build these smaller, multi-unit buildings,” he suggested, noting some three- or even six-unit buildings are actually smaller than large single-family homes. “Maybe research could be developed to help define less onerous and less expensive life-safety requirements for buildings up to 10 units to make them more viable.”

This is a bipartisan cause that increases property rights and also helps create more workforce housing for middle class citizens, Julian said. “Cities need to refine zoning to remove barriers and find more areas and processes to allow this,” he declared.

Advocates like Parolek are working on this. 

In recent years, the multifamily real estate sector of the industry has experienced fast growth and change. The demand for and trends in multifamily homes have changed significantly due to urbanization, shifting demographics, and technological improvements.

It's critical to look more closely at what the future brings for this fascinating and dynamic profession. This article will discuss the newest real estate trends and forecasts for multifamily real estate. 

If you’re into property management and interested to learn more about this, then read on!

What is the multifamily market outlook for the United States?

The multifamily market outlook has in store for the United States is positive, with continued demand for rental properties driven by demographic trends, economic growth, and lifestyle changes. 

Despite some short-term uncertainties and challenges, such as the rise in interest rates and potential shifts in government policies, the long-term fundamentals of the multifamily market remain strong.

According to industry experts, the overall demand for rental properties is expected to remain strong in 2023, particularly in urban areas and among younger generations who value mobility and flexibility.

Additionally, the rise of remote work and changing work-life balance priorities is expected to continue to shape the multifamily market, with tenants seeking properties that offer amenities and features that support their lifestyles.

The transition toward more extraordinary urban life is also among the most significant trends that are anticipated to persist. Several variables, such as the demand for walkable areas, accessibility to public transit, and a desire for a more active social life, are driving this. As a result, it is predicted that developers will keep constructing high-density housing and mixed-use buildings in metropolitan regions.

The increased application of technology in the real estate sector is another trend expected to persist. It includes using virtual reality and other immersive technologies to assist purchasers and renters in perceiving homes. It also involves using AI and machine learning to evaluate data and facilitate decision-making.

Meanwhile, positive and negative trends build the real estate market updates to watch. Apart from those above, potential issues may affect the real estate market. One of these is an increase in interest rates, which may make it harder for purchasers to afford homes and cause the market to slow down. The real estate market may also be impacted by changes in governmental policy, such as tax reform or adjustments to immigration laws.

Yet, overall expectations for the US real estate market are optimistic, with the sector likely to experience ongoing expansion and innovation.

What are the Trends in Multi-family Real Estate?

There are various multifamily housing trends.

Here are some of them.

Sustainable And Green Structures

In the real estate sector, there is an increasing focus on sustainability and green buildings, and this trend is anticipated to continue.  Multifamily houses are getting increasingly ecologically friendly amenities, including solar panels, green roofs, energy-efficient appliances, and water-saving practices from developers.

Smart Home Technologies

Renters are growing more and more interested in smart home technologies, and multifamily property owners are beginning to include these amenities in their structures. These include voice-activated assistants, automatic window treatments, and smart thermostats.

Growth Of Co-Living Spaces

​Younger tenants are increasingly interested in co-living spaces, where residents share standard rooms and services. As more developers construct co-living facilities that provide distinctive features and community-focused living arrangements, this trend is anticipated to continue.

Flexible Work Spaces

There is an increasing need for flexible workplaces and coworking spaces in multifamily buildings as more individuals work remotely or launch their enterprises. In response, builders include these kinds of rooms and other adaptable features like furniture pieces and convertible areas.

Amenities For Remote Work

A remote workforce will increasingly require facilities like high-speed internet, coworking spaces, and private outdoor spaces; therefore, multifamily buildings must offer these.

Focus On Health And Wellness

The COVID-19 epidemic has sparked a new interest in health and well-being, and the multifamily market is projected to follow this trend. To accommodate this demand, developers are adding additional health and wellness features to their buildings, such as gyms, yoga studios, and meditation rooms.

Smaller Area Units

Smaller multifamily flats are becoming increasingly common, especially in metropolitan areas, due to rising housing costs. These apartments sometimes have lower rents, which appeals to younger tenants who value convenience over space.

In general, it is predicted that the multifamily real estate market  will be driven by an emphasis on sustainability, technology, and communal living arrangements that meet the expectations of contemporary tenants. Keep up with these trends and multifamily real estate predictions as part of your investment strategies!
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Certian markets provide better opportunities for multifamily property investment than others. Strong economic development, increased employment possibilities, population expansion, and a high demand for rental units are frequently seen in the greatest locations for multifamily investments.

The following are a few of the best markets for multi family investments:

Austin, Texas
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With a robust tech industry and a broad economy, Austin frequently ranks as one of the fastest-growing cities in the United States. The city also has a significant demand for rental homes, which attracts multifamily investors to the market.

Denver, Colorado

Because of its quickly expanding population, Denver has a robust employment market, a developing tech industry, and a high demand for rental homes. Compared to other large cities, the city's cost of living is comparatively inexpensive.

Phoenix, Arizona

Due to the city's appeal to seniors and young professionals, Phoenix has a robust economy, a growing population, and a high demand for rental homes.
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Nashville, Tennessee

Nashville has a solid economy, a vibrant music and entertainment business, and a burgeoning IT sector. The city also has a relatively low cost of living, attracting multifamily investors to the market.

Raleigh-Durham, North Carolina

Due to its expanding population and robust employment market, Raleigh-Durham is a rapidly expanding tech cluster with a broad economy and significant demand for rental homes.

The ideal markets for multifamily investments differ depending on variables, such as local real estate laws, population trends, employment growth, and economic situations. Before investing in any market, investors should perform careful due diligence and market research.
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The Bottomline:

It's critical to remain current on the newest trends and forecasts for 2023 and beyond if you are interested in the multifamily real estate sector. You may position yourself for success as an investor, developer, or property manager by knowing the variables that are causing a change in the sector. 
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There are numerous tools available to help you keep up with the most recent trends and advances, whether you're an experienced industry expert or just getting started. So don't wait; begin learning about multifamily real estate's future today, and be ready to embrace the possibilities that will come your way.

Hines, the global real estate investment, development and property manager, released its global outlook titled, “2023: Navigating Through the Labyrinth” today. Following the turbulence in 2022, opportunities will abound this year due to repricing, continued outperformance of high-quality office assets, and deflation in some key sectors.

Global Chief Investment Officer David Steinbach said, “In a period of global economic discord, transaction volume will be unlocked with debt availability and the reset of pricing levels more in line with expected fundamentals. Successful acquisitions and developments in the new year will also focus on high quality assets that meet customer demands for simplicity and flexibility. We expect to see more accretive opportunities emerge in 2023.”

Looking at global trends, the report reveals that mostly industrial and for-rent residential markets continued to have solid fundamentals. Retail fundamentals saw recovery from the damage caused by lockdowns, but high inflation in many markets is cutting into discretionary spending and is disrupting continued recovery. While short-term rates are expected to fall and long-term rates to remain sticky, the report outlines a few key areas as signs for investors to pivot strategies, including improvement in transaction volume, rising availability of traditional debt, and cost-averaging down (i.e., deploying capital patiently during a market disruption). 

Sectors in Our Sights

Utilizing proprietary research tools to analyze market data, the report provides sector insights for the Americas, Asia, and Europe and suggests how real estate investment strategies should evolve this year:

Americas

Investors are still recalibrating their portfolios, as they have seen downturns on both the equity and fixed-income sides of their ledgers. Tenants have been reviewing their growth plans for the year ahead and pausing on new activity, however, there is potential for opportunities during the second half of the year, including: 

• Industrial: Industrial fundamentals are still strong in most markets, but demand will drop if discretionary consumer spending is negatively impacted by the downturn. The most interesting opportunities are in high barrier markets where yield premium to acquisition value is substantial.
• Office: Continued caution is warranted as the full impact of hybrid schedules has not been fully absorbed. Flight to quality will remain evident in new development performance as a better designed, modern, sustainable product.
• Living: Careful submarket selection is paramount, as some markets are oversupplied, and affordability ratios are elevated. Secondary and tertiary markets may provide outsized opportunities arising from migration trends, and there is continued demand for larger units, activated green spaces, and single-family rentals. 
• Retail: Compelling opportunities are emerging to redevelop dated retail for the highest and best use, such as grocery-anchored, lifestyle and open-air service-oriented retail offerings and last-mile logistics.

Asia

Against the backdrop of this year’s macroeconomic and political headlines, the rebalancing of real estate product types has largely played out. Trends have indicated that the real estate industry’s main sectors may converge further. Opportunities exist in: 

• Industrial: Demand for logistics space remains strong to address e-commerce demand, and as Asia’s economies become wealthier, there is a need for more cold-storage facilities.
• Office: Assets have seen strong growth in high-value locations. While Asia has not been hit as hard by working from home or hybrid schedules, attracting new tenants to office spaces will require a new creative dimension of user experience.
• Living: Rental demand continues to grow in markets where homes have become increasingly unaffordable; this includes developed markets like Australia, Korea and Japan.
• Retail: Yields for retail assets have been attractive relative to other property sectors. Increased stability in retail fundamentals will continue as vacancies and rents have been stable or moving in the right direction.
• Emerging Sectors: Sectors such as life-sciences are institutionalizing, suggesting higher income yields and growth prospects.

Europe

As we look at strategies for 2023, the ‘beds and sheds revolution’ of recent years has played out. There is no longer a standout winning sector. Our ability to understand nuances of quality within a product type has become more important than just picking the right general bucket. Opportunities will include:

• Industrial: As capital demand normalizes, focus is expected to return to individual assets and location quality.
• Office: The future of the office debate continues with a focus on a flight to quality – with occupiers seeking a path to net zero. This means there is a smaller pool of viable assets, yet a focus on prime buildings given ESG should outperform older assets.
• Living: Mainstream residential is losing its appeal as yields tighten and heightened regulation (e.g., Ireland, Netherlands, Germany) has restricted rental growth. However, niche product types such as senior living, student housing and serviced apartments maintain their appeal.
• Retail: The sector is faring better than expected. Negative sentiment has resulted in attractive pricing; however, new economic headwinds and uncertainty will delay a quick sector rebound as consumer confidence continues to draw back.

Click here to read the report and watch a video from David Steinbach, global chief investment officer at Hines.
 
About Hines

Hines is a global real estate investment, development and property manager. The firm was founded by Gerald D. Hines in 1957 and now operates in 28 countries. We manage a $92.3B¹ portfolio of high-performing assets across residential, logistics, retail, office, and mixed-use strategies. Our local teams serve 634 properties totaling over 225 million square feet globally. We are committed to a net zero carbon target by 2040 without buying offsets. To learn more about Hines, visit www.hines.com and follow @Hines on social media.
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¹Includes both the global Hines organization as well as RIA AUM as of June 30, 2022.