Stanley Iezman & Christopher Macke of American Realty Advisors have some interesting insights on whether suburban apartment buildings will continue to be hot, in a recent article, What’s the Verdict on Urban vs. Suburban CRE Investment?
Suburban appeal is certainly increasing due to strong current property fundamentals as a result of limited construction activity. Not only is the current rent growth greater in both multifamily and office than in urban areas, but it is also above its long-term average. While this has created some major buzz in favor of suburbia, the truth is that the growth may not last.
For one thing, this shift has only occurred quite recently and the recovery period for suburban office fundamentals is much later than its urban counterparts.
In addition, the more favorable numbers for the suburbs may not be a lasting change. Multifamily rent growth in the suburbs already appears to be moderating and we are expecting to see an increased supply in the near future.
However, if property fundamentals in the suburban market continue to recover, both suburban multifamily and office supply will eventually increase, and this will have a negative impact on rent growth. Investors need to consider the long-term before taking the plunge.