Multifamily Thrives in U.S. Second Cities
Learn more about the up-and-coming cities across the country that are attracting modern renters.
San Francisco is synonymous with technology, New York City with finance, Detroit with automobiles, and Los Angeles with film.
While these cities are archetypes of the primary industries they have long served, a host of smaller, up-and-coming “second cities” are on the rise.
Second cities are metropolitan areas attracting diverse industries and younger generations. They also offer high-income jobs, commuter-friendly infrastructure, and economic growth—giving way to prolific multi-housing development to attract this new class of Gen Z professionals.
Three cities are exemplary cases of this trend: Charlotte, North Carolina; Phoenix, Arizona; and Jacksonville, Florida.
Charlotte, North Carolina
Charlotte is a location of choice for the finance industry, second only to New York. Bank of America has headquarters based there, and Wells Fargo, MetLife, AXA, and LendingTree have also either expanded to the area or announced headquarter relocations.
For companies, southeastern states offer favorable taxation and lower overheads, which make headcount increases and expansion more cost-effective than in the North. Plus, it’s still on the east coast, which facilitates contact with New York-based and European colleagues, making relocation here attractive.
The Charlotte metro area added an average of 2,275 jobs per month year-over-year (by comparison, New York City added 3,000 high-wage jobs). Professional and business services accounted for more than one-third of those new positions. The decade ending in 2017 also saw the population increase over 22 percent while housing units grew around 14 percent.
Along with record employment and population growth, as well as record-high single-family property values, gentrification is another spur to booming multifamily development in Charlotte. The increasing millennial population, both tech-savvy and culturally engaged, views Charlotte as a more affordable option than larger coastal cities. This demographic continues to drive housing demand through a period of very aggressive development.
Charlotte has added almost 29,000 units since 2015, and more than 14,000 additional units were under construction as of the first month of 2019. August 2019 reported a year-over-year (YOY) rent growth spike of 4.7 percent.
In the top 30 markets, San Francisco realized 3.9 percent and Los Angeles saw 3.4 percent year-over-year rent growth. Las Vegas and Phoenix lead with 7.5 percent YOY rent growth, with Atlanta and the Inland Empire following at 4.8 percent. Like Charlotte, these markets have experienced exceptional job and population growth.
As the eleventh-largest metropolitan area in the United States, Phoenix is a leader in a wide range of industries including education, aerospace, manufacturing, and bioscience. As jobs in the region have diversified, Phoenix has also witnessed exponential job growth. Since the 2008 recession, Phoenix’s economy has been steadily on the rise—in 2019, it ranked second in the nation for YOY job growth and fourth in GDP growth.
Phoenix’s unbeatable weather, diverse landscapes, and a booming arts and culture scene also make it an appealing option for young renters. On top of the cultural and employment opportunities, one of the biggest benefits for millenials in Phoenix are the affordable rent prices compared to other major U.S. cities——especially those looking to escape over-crowded and over-priced urban centers along the coasts.
As more and more renters move to this southwestern hub, apartment prices are beginning to rise. In 2018, the rent in Phoenix increased 7 percent year-over-year, making it the second-largest rent growth in the country, falling behind only Las Vegas.
Despite the rise in apartment costs in the area, Phoenix’s average rent of $1,001 still remained well below the national average of $1,419—making it a cost-effective alternative to cities like New York and San Francisco, who’s average rent, in comparison, was $4,200 and $3,609 respectively.
Thanks to Jacksonville’s location and deep-water port, it has historically been an economic epicenter along the eastern seaboard. Though today the city is primarily known for its golfing and tourism, the city also boasts a diverse mix of industries, from military and defense to banking to logistics.
In addition to its booming industry, Jacksonville is also on the rise in the arts and culture with events like the Jacksonville Jazz Festival and the Jacksonville Art Walk. Rated by Forbes as one of the most surprising foodie cities, it is also one of the best places to experience fresh seafood along with its “melting pot of cuisines” that blend southern, Mexican, and creole influences.
Florida’s economy has been growing at a faster rate than the nation’s, with northeast Florida leading the way. Unemployment is lower than the national average at 3.1 percent and the average 2020 annual wage growth is projected at 3.9 percent, making Jacksonville an appealing option for young professionals.
As the economy continues to grow, competition in housing is expected to become more and more competitive, and the change has already begun. Between 2017 and 2018, Jacksonville’s average rent increased 6.3 percent, making it the second-largest increase in Florida (behind Orlando) and the fourth-largest in the nation.
Multifamily connects to tech
It’s clear that resident demographics in second cities skew toward millennials. And developers are keen to find ways to meet their expectations with high-value amenity offerings that deliver new meaning to a truly modern living experience.
The perception of “traditional amenities” has changed as residents desire more flexible and personalized spaces that can adapt to their changing lifestyles and needs. According to a recent survey by property management platform Entrata, residents today desire smart, connected environments with the ability to make online payments and access to high-speed internet over traditional features like pools or covered parking.
And while technology-enabled communities with smart home devices, from smart thermostats to lights, provide meaningful and convenient benefits for residents, there are other amenities that they’re willing to pay a premium for. Because the desire for security is now at the top of the amenity list for renters, it makes sense that residents place the most value on technology that provides peace of mind and awareness of what’s happening around them.
But while 65 percent of those surveyed would be willing to pay higher rent to live in a “smart community,” when it comes to adding tech to a property, owners must strike a balance between investments that drive down operating costs and capital expenses while increasing property value. For owners, smart access is the solution that empowers both residents and property managers.
Smart access is the second most-desired smart home amenity among multifamily residents, and one of the 10 amenities they would pay a premium for—alongside in-home laundry services, the ability to make online rent payments, and an automated maintenance request system. Smart access also establishes the framework (and makes a lucrative case) for amenities that support smarter living. For example, the average resident spends a total of 2.5 days waiting to let in deliveries and other visitors. With smart access, residents are enabled to share and monitor access with guests or service providers, from on-demand grocery deliveries to dog walkers.
The result is a smarter apartment that goes beyond trendy gadgets by addressing the lifestyle needs of modern residents. These buildings offer greater flexibility around how residents access their spaces, more convenience through access-sharing technology, and added security.
Multifamily properties that embrace technological advances thoughtfully are more desirable to live in, which helps owners with net operating income (NOI) and ensures their buildings continue to stay relevant by meeting resident needs today and tomorrow.
Get in touch to learn how Latch can help you meet the needs of modern residents.