We call them ‘a block of flats’. The investment world, especially in the US, calls them ‘multi-family real estate’. Whatever you call them, they are going off, especially in the US. US-based real estate investment manager Hugh Macdonnell says the growth of the new asset sub-class reflects the changing times in which we live.
The trend, driven by demographic shifts, is towards high-end apartments with a range of lifestyle-friendly facilities attached. And, from an investor’s perspective, the returns from multi-family dwellings, have outstripped other property investments in recent years. Retail used to be number one. Now it’s multi-family.
Macdonnell, a managing director and head of client capital management at Clarion, an affiliate of Legg Mason, further suggested on a regular trip to Australia last week that apartments offered lower risk than other property investments in a downturn. “People always need a place to live,” he said.
The fundamental drivers for multi-family dwellings are demographic. Younger people, say couples in their late 20s and 30s, like the lifestyle being offered by modern multi-family real estate, featuring amenities such as swimming pools, coffee shops and concierges. “They often have wine and cheese nights too, to provide a better sense of community,” he says.
“A long time ago there was a shortage of good apartments to rent [in the US]. Now, we have ‘branded’ apartments focusing on high-end services for residents. Those people are our target demographic. They pay more, but they do so for the flexibility over owning their own place… We know that millennials are marrying later in life and they are having children later. They tend to stay in their [rented]apartments until their children start school.”
He says that the demand driver for rental apartments is very strong. The vacancy rate is at a low 4 percent. And it is a “very stable” market.
The new-style US apartments are very different from what we tend to have in Australia. For instance, when you walk into one, there will be a common area. People can also work all day in individual spaces, which also fits the evolving working demographic.
“Even the way packages are accepted – from Amazon deliveries, for instance – is very sophisticated,” he says. “There’s a whole infrastructure built up… If you get it right, people want to stay in the building… I can see this having an application all around the world.”