Developers Eye Growth of Garden-Style Apartments in the Suburbs

Drive through practically any city across America, and you're bound to find cranes dotting the skyline. Much of this new construction consists of high-end, luxury apartment buildings, which has been on an uptick over over the last few years. In fact, recent research has classified approximately 79% of all large-scale apartments completed in 2017 as high-end construction. In the first half of 2018, that number grew to almost 85%.

But while high-rise luxury apartment buildings have been sprouting up in more dense urban centers, there's another boom happening in the suburbs. It's actually the antithesis of high-end high-rises: garden-style apartments.

Shifting to the 'Burbs

One of the primary reasons garden-style developments are typically regulated to the suburbs is due to space.

These builds tend to take up more acreage, and are typically only three or four stories tall. Since many suburban municipalities have restrictions on building height, garden-style units are ideally situated for these areas.

Alex Brown, managing director of Cushman & Wakefield's Sunbelt Multifamily Advisory Group, highlights this impact across the Southeastern United States.

"Over the past 12 months, there has been a real shift from high-density urban locations to lower density suburban markets," Brown explains. "Of the top five most active developers in our market, roughly three-quarters of their current pipeline is suburban."

And there's yet another reason behind garden-style unit growth— millennials.

As the oldest group in this cohort approaches 40, they are looking for different experiences for this new stage of life. Trends continue to show that millennials primarily remain renters. However, this group is also looking for living situations that offer a high quality of life with less congestion and better amenities.

Many of the regions that correlate with those trends are smaller cities in areas with growing job markets. These areas include much of the Sunbelt, and cities such as Raleigh, Austin, Albuquerque, and Tampa.

Focusing on Creating Amenities

Ron Melendez, VP of development for the Florida-based Related Group, stresses how important amenities are for tenants.

"Each community we develop focuses on exceptional integration with the surrounding neighborhood and provides superior offerings in health and wellness spaces, as well as areas for relaxation, interaction, and entertainment."

When it comes to amenities, garden-style developments can offer options that many high-end high-rises cannot. While taller towers are getting creative with outdoor space offerings, only garden-style apartments can offer a true backyard or patio.

While package delivery and high-tech features are now becoming standardized, garden-style developers are also adding more space for working and entertainment. In fact, Brown notes, many garden-style developers are focusing less on unit size and more on space for amenities.

"Developers are building more amenity space per unit in the suburbs than they are for their urban product," he explains. As the average unit size in the suburbs has decreased, amenities that are designed for entertainment have become increasingly popular. "Developers are incorporating sky lounges and large courtyards to give residents more functional space outside of their apartments."

That's precisely the approach Melendez is taking. The Related Group adds amenities that offer a way for neighbors to connect.

"With a community mindset, we designed our amenities specifically for the people who live there. We know our residents enjoy engaging with their neighbors, who are typically like-minded people."

Opportunities for Developers

While there are certainly barriers to entry in suburban areas, especially those still working through zoning issues, for many developers, the opportunities in garden-style units are worth it.

"While garden deals require more land," Melendez says, "they are quicker to build, allow for phased turnover with minimum construction disruption, and are not subject to other codes that affect many high-rise projects."

Demand also continues to remain high relative to the supply of garden-style units available in the market. So it also means that older garden-style apartments can't compete with newer builds. Many developers and investors are spending on upgrades that improve value and attract more tenants—as well as higher rent.

"As new luxury product establishes a higher rental ceiling in the suburbs," Brown notes, "there is greater room to upgrade existing assets and take advantage of the widening spread in rents."

For developers interested in adding value to current units, that's encouraging news.