Whether you’re leading a target, skating to the puck or building to meet emerging demand, the principle remains the same: Anticipate your target’s trajectory, and meet them at the point in time and location where factors align for the most significant impact.
Economic variables including skilled labor availability, job growth, quality educational infrastructure and housing affordability align in markets with expanding populations of young professionals and students. If you’re looking for the best cities for multifamily investing to start or expand your investment portfolio, follow the migration patterns of young professionals as they seek career opportunities and affordable housing.
Cities Attracting Tech Employers And Talent
What attracts tech firms to a city? It’s usually a combination of suitable space, award-winning colleges, an educated workforce, tax incentives and the vivacity of the local hospitality industry. Cities like Seattle, San Diego, Minneapolis, Portland, Washington D.C., Denver, Tampa and Chicago are among the metros leading the way in tech sector growth and the creation of high-paying, specialized jobs. Though well-compensated young professionals are fiscally prudent and strive to maximize the value of their income and minimize their risk of default, they favor markets where they can buy homes and become long-term residents of communities that offer affluent lifestyles at affordable prices.
Most tech markets share rapid appreciation in home values and a consequent lack of affordability. The challenge for emerging professionals is that most top tech markets offer jobs but little suitable housing in their price range. Young professionals gravitate to markets where they can experience the urban lifestyle and social atmosphere, and also live in hip and cost-effective places.
The growing populations of young professionals and students in these tech-oriented cities creates tremendous demand for multifamily housing and ample opportunity for savvy investors. Many younger prospects making the transition to big cities in pursuit of education and employment aren’t yet in the position to make home purchases; however, their strong incomes allow them to secure leases and drive demand in the multifamily marketplace.
Nightlife Supporting Economic Growth
Don’t discount the impact of a thriving nightlife and restaurant scene on a region. It’s a social factor that’s often overlooked but can be a compelling draw for young people as they explore professional life. This trend is seen in cities such as Chicago; Asheville, North Carolina; Lexington, Kentucky; and Nashville.
Cities with active music scenes and diverse cultures tend to draw progressive corporations and young executives and exhibit corresponding growth in the real estate market. In addition to attracting and serving the influx of next-gen professionals, food and entertainment industries create jobs in numerous associated callings and create additional demand for multifamily housing.
New York, a tech-leading city known for entertainment and dining opportunities, was ranked the fifth-best market for tech talent. Incidentally, the NY nightlife industry employs 48,000 workers and generates $6 billion annually. That’s a heap of potential commercial and residential tenants, rental revenue and social appeal.
Many urban developers are taking advantage of growth in both market segments by building restaurant space into increasing numbers of multifamily residential properties. The entertainment and hospitality industries reinforce sympathetic growth in demand across property classes.
Find The Right Mix Of Jobs And Affordability
Here’s the catch: Affordability is the key challenge facing up-and-coming professionals, grad students and hospitality industry staff in growth tech markets. Rising rents and property values in well-known tech and nightlife cities like San Francisco limit the availability of suitable affordable housing with tolerable commute times.
Fortunately, there are some tech markets where professionals and students can afford to live a quality lifestyle, reasonably close to work and school. Markets with more affordable housing (on the relative scale of affordability for big cities) include Raleigh, North Carolina; Burlington, Vermont; Portland; Los Angeles; and Atlanta. A major tech hub that fits with this group, where young professionals can get their start as renters or homeowners, is my firm’s headquarters market of Austin, Texas.
Transitioning To Single-Family Homes And Condos
Many people in their twenties choose to live downtown in high-rise apartments, but what happens when they want to start families? They look to buy a patch they can call their own — a condo or single-family residence.
While competitive lease rates in multifamily create accessible markets for new professionals and students, these residents will later transition to single-family homes as their careers progress. When that occurs, the affordability of single-family housing plays a key role in determining the longevity of their residency and long-term workforce stability.
Inflated urban home values and a lack of affordable housing in the closer suburban areas encourages professionals to consider relocation. Cities that offer inventory and affordable pricing in single-family and multifamily housing markets help tech employers retain the best talent at each phase in their career.
At the Intersection
Lincoln, Nebraska — home to offices of Dell and Novartis, among others — is an example of a market where real estate developers are turning their focus to providing affordable multifamily housing units for young professionals. There’s tremendous opportunity to meet the needs of this group that comprises roughly 33% of Lincoln’s downtown population.
Where there’s an inadequate supply of multifamily, you’ll find abundant opportunities for real estate developers. The best cities for multifamily investing are those with stable growth across classes that allow an affordable transition for developing professionals.
In your search for a suitable multifamily investment market, look for balanced growth in multifamily, single-family, mixed-use commercial and hospitality. Tech markets with growing populations of young professionals and affordable home prices present an ideal economic environment for long-term growth in residential assets.