Multifamily Amenities Reimagined: Another Tailwind for Rent Growth

Expanding property amenities to better service tenants is a familiar idea, but the competition to deliver exceptional experiences is novel. The drive to win over tenants, increase rents, and reduce tenant turnover is fierce. Since the global recovery from COVID-19, office landlords have competed against residential properties over where people spend their time. When young professionals book meeting spaces with custom heat & light controls, high-speed internet, and wireless computer-to-monitor projection, are those conference rooms in the office or on the second floor of their luxury building? The answer would have been obvious a few years ago, but it's harder to say with the ongoing innovations in apartment buildings.

The Demographic Shift

When NYC apartment investors looked around during the doldrums of the Great Recession in January 2010, they saw stalled construction sites, condo projects converted to rentals, and hundreds of thousands of jobs cut. These gloomy indicators all contributed to residential rents sliding back to 2000-era rents, according to Century 21 NY Metro President Marc Lewis. Rents in 2010 declined by 25% from their 2008 peaks. Few new building deliveries were happening, but because apartment demand was equally low, or perhaps lower, vacancies doubled from 2007. To win tenants and to avoid the "game of musical chairs where tenants move to fancier buildings or [look to obtain] better deals," developers leveraged amenities.

New buildings created amenities like swimming pools, expansive gyms, movie theaters, roof decks, game rooms, and more to target young professionals. Developers offered tenants free gym memberships, AmEx gift cards, and even free iPods (60 Monitor Street in Williamsburg) as move-in incentives, highlighting the focus on courting younger tenant groups. To win tenants over, landlords offered up to five months of free rent. Large rent concessions, gimmicky incentives, and new amenities sound like desperation. This shouldn't sound so unfamiliar. Covid-19 put landlords on the defensive and forced them to strike desperate deals that reflected their weakened negotiating position. Moody's economist Marisa DiNatale implied it was a renter's market in January 2010 when she said, "You won't see pricing power for landlords return until there's a strong recovery of the economy."

There are many differences between the renters of 2010 and those of today, but what sets them apart the most is how much time today's renters spend at home. Young professionals in their 30s seldom wear suits. That change predated the pandemic. Since remote or hybrid roles have been commonplace since COVID-19, the bar for work attire has been further lowered. Forget the suit because the modern white-collar job no longer requires combed hair, clean shaves, or a dress shirt. And it's not just the attire that has changed at work—the expectations around time spent in the office have also transformed.

Apple, Vanguard Financial, and Starbucks allow corporate employees to observe hybrid work models where they come to the office three days a week. These companies hire ~100,000 corporate employees combined and have ~$4 trillion in market capitalization. Though some companies have asked employees to return to the office five days a week (except for their CEOs, lol), the cat's out of the bag. The shift can’t be completely reversed. Startups with limited capital want to avoid signing long-term fixed expense commitments, or what we call leases. Instead, they go remote first. Employees at multinational companies have made hard commitments to purchasing homes in suburban communities, sometimes over 100 miles away from city offices. Some companies are making a tough choice to lay those people off who are not willing to reconfigure their lives and relocate. Other companies are scooping up those remote-oriented folks because they are remote-first businesses.

COVID-19 marked the beginning of an enormous demographic shift that changed the balance of time spent in the home vs. at the office for millions of Americans. For the first time in a long time, companies had to ask themselves how to get employees to come to work. Corporates leaned on various third-party vendors and advisors to help them plan their Return to Office (RTO) policies. Among those advisors, office landlords began planning amenity packages to help corporates get their employees back in their chairs. Twenty blocks north from Midtown East offices buildings, luxury multifamily owners and developers put their brain caps on and wondered how to keep their tenants from spending time outside their building.  By rethinking these questions, developers of office and residential properties began to transform how tenants interact with and think about amenities.