Will The Demand for Rental Housing in New Haven Ever Stop?

 Every time a big new building is proposed for apartment development, people wonder how long it will take to fill.  The answer always seems to be:  not long.  A few years ago, New Haven was the second tightest apartment market in the country, meaning that the supply was way too small for the demand.  After that point, building after building has either been renovated or built.  Each time, there is a prediction of how that new supply will affect the rest of the market.  And, each time, the new units seem to get absorbed without much of a ripple in the rest of the pool.

One reason for this is that there is a very large number of students in our area.  Because of Yale especially, there are many who have more money that one would expect.  In addition, due to the global reach of Yale, some of those students rent sight unseen, and money is not the deciding factor.  In the past, this led to a supply of substandard student housing around each university, with the differential between good quality and bad not making much of a change in the rental amount.  That is, low supply led to high prices, relatively speaking, for bad apartments, spurred by the likelihood that they would be rented without being shown.  

The new buildings came on with the idea that empty nesters and medical residents, plus young professionals and weekday commuters, would fill them.  This underestimated the student demand from other graduate schools and even undergraduates.  It also undercounted those who work in Fairfield or Hartford counties, but commute, often by train, due to New Haven's night life and cultural opportunities.  These factors filled 360 State Street, the first of the big projects, and several more of similar size.

Now there are even newer buildings, and they are filling also.  Is this pandemic driven, with schools displacing portions of their students?  Or a change based on prices elsewhere, or increased remote working?  It's hard to say, but the estimated drop in demand for traditional multifamily hasn't occurred so far.  The dearth of single family units will also lead to more rentals, so we may not be near the end of the boom yet. There's still time to jump into the mix, and buy while rates are low.

Too Much Space Is Now Just the Right Amount

 For years now, commercial real estate users have been looking to divest property and downsize in square footage.  This trend picked up rapidly as the pandemic set in, and workers began telecommuting from home.  Once we started to take a long view, however, things changed.

Now we can see far enough ahead to realize that bigger buildings may be an asset.  It allows all kinds of users to have space for their workforce to spread out, or for retail tenants like exercise studios or restaurants to occupy enough real estate to have customers socially distance.  As I've been writing for months now, warehouses were already hot, because of the trend toward ecommerce and the need for distribution hubs.  Now we know that they can also be repurposed for other buyers and tenants.  

As we work our way toward the new normal, whatever that turns out to be, the lack of new supply will force creativity on the part of property owners and investors.  New businesses are springing up, and people are finding ways to work and play in new circumstances.  We can see that there may be a demand for space for learning pods for students, for telecommuters who don't want to or cannot work from home, for pick up and drop off sites for businesses that want customers to be able to stay apart while doing errands, for studio space serving online business and arts production, and for last-mile delivery hubs for all kinds of products.  Can you imagine a giant warehouse full of toilet paper?  If you can, you are probably not alone.  

The world has changed in so many ways, but the creativity and resilience of entrepreneurs and existing industries will be up to the task of figuring out a path forward.  If you are a property seeker, or an investor, location should still be a key factor.  However, don't pay as much attention to size, condition, or current usage.  Whatever you have, a buyer or tenant is probably out there looking for something like it.  And those buyers will certainly have favorable financing terms today.  So think about now as a great time to sell, lease, or sublet. There's no time like the present!