Amenity Space “Differentiators” Drive Multifamily and Office Design in 2017December 9, 2016
By FitzGerald Associates Architects
With the return on investment for apartment properties markedly higher than their condominium counterparts, the Chicago luxury rental market continues on its path toward unprecedented growth. According to a recent report from Appraisal Research Counselors, a Chicago-based consulting firm, developers will complete more than 8,800 apartments downtown by the end of 2017. As such, the competition among developers to attract and retain tenants – and deliver a strong-performing asset for investors – remains fierce.
And with national office vacancy rates are as high as 25 percent in some markets – largely due to an increase in new supply and co-working spaces coupled with low absorption rates – landlords of existing buildings also find themselves needing to raise the bar to attract tenants and keep occupancy rates stable.
Faced with so much new product on the horizon, developers and designers are charged to stay ahead of the differentiation curve – and in this market cycle, amenities are at the forefront.
THE DEMAND: ‘Renters By Choice’ Fuel Luxury Apartment Development
The wave of new luxury rental properties hitting the market over the past few years has seen a substantial demographic shift. Renting is no longer just for those who don’t have the financial means to own a home. Instead, today’s luxury apartment communities, many of which boast amenities in line with a five-star hotel, offer a lifestyle for individuals who have elected to rent despite having the financial means to own. These so-called “renters by choice” have decided to forego homeownership for a multitude of reasons, including a desire for flexible, maintenance-free living, as well as a full-service residential experience that is difficult to replicate in for-sale housing. Whatever their motivation, today’s renters have no shortage of buildings to choose from, forcing developers to consistently up the ante in order to stay competitive and live up to higher expectations and demands.
Largely based on the needs and wants of millennials and boomers – the two strongest demographic groups in the current renter base – the over-the-top amenities in new luxury rental buildings are like nothing we’ve seen before. Baby boomers are interested in downsizing and foregoing maintenance, but they don’t want to sacrifice the comforts they enjoyed in their previous residences, while millennials want to maintain, and in many cases elevate, the lifestyle they’ve grown accustomed to as renters in recent years.
According to Zillow Research citing the Census Bureau’s Survey of Market Absorption of New Multifamily Units (SOMA), the majority of the almost 100,000 new apartments that came online nationwide in Q3 2015 were rented within 12 months. That figure represents 21 percent more apartments than 2014, 73 percent more than 2013, and is the most at any point since the late 1980s. (Source: Multifamily Executive.)
And as the number of renters has climbed – with 1.6 million more apartment renters today than just five years ago, according to the National Multifamily Housing Council – homeownership has dropped to a 50-year low, with many would-be first-time buyers priced out of the market. Unlike in previous cycles, renting is no longer considered a short-term housing option. Today’s apartment dwellers are renting for longer periods of time and developers are increasingly looking for ways to create a sense of place and community in order to entice existing residents to stay.
THE EVOLUTION: ‘An Amenity is Only as Good as the Current Demand for It’
Research has shown that amenities available to renters directly correlate with their tenure and satisfaction – the more original, the better. Gone are the days of inflexible theater rooms with bulky amphitheater seating and business centers with rows of facility-owned desktop computers. Even tennis and racquetball courts are becoming passé, replaced by more social, communal and flexible spaces. Our experience, and that of our clients, has been that these spaces eat up valuable square footage – not only because they’re underutilized, but also because of their physical constraints, which make the spaces difficult to adapt when tastes change. After all, an amenity is only as good as the current demand for it.
Yet some classic amenities have retained their appeal over the years. A recent NMHC survey of 120,000 renters across five metro areas (Boston, Miami, Denver, Houston and Seattle) demonstrates that there is an incredibly consistent demand for the same “core” amenities from coast to coast. Parking tops the list (94%), followed by swimming pools (83%) and fitness centers (82%). Perhaps surprisingly, recycling (80%), along with secure building access (80%), are tied as the fourth most desirable amenity.
In some cases, amenities that were once “high end” are now considered standard in Class A buildings, further evidence of how tastes have evolved over time. Based on data gathered from the last 10 Chicago-based multifamily projects designed by FitzGerald since 2011, outdoor swimming pools, fire pits, grilling stations, media-filled lounges, billiards rooms, individual and small-group workspaces, bike storage and storage lockers top the list of “core” amenities, or those most commonly included in new developments.
What makes a property competitive against its peers, and the key to attracting and retaining tenants, has become what we term “the differentiators.” At our Chicago projects, differentiators have included indoor pools, spas and poolside cabanas; demonstration kitchens and private dining rooms; wine rooms; adaptable fitness areas with amenities like yoga or Pilates rooms equipped with on-demand streaming fitness classes; bike kitchens; and even juice and coffee bars. Today’s game rooms might be equipped with the latest video game consoles, surround sound and live streaming for competitive play, or “vintage” game rooms with all the old favorites – billiards, foosball, Pac-Man, ping pong and poker tables – but in a social gathering space that can be used individually or to host a group. Green space is another key differentiator, particularly in a dense urban market like Chicago, and can encompass everything from resident gardens, rooftop lawns with outdoor screens, and gaming areas for bocce ball to shuffleboard and life-size chess and Jenga. And we can’t forget pet amenities. Beyond dog runs, residents are being drawn to dog washes, grooming stations and even dog treadmills.
Of course, with requests for more diverse amenities comes the need for additional square footage to house them. While dedicated amenity space has doubled in size in the last five years, building footprints haven’t grown at the same pace. Better amenity packages can demand higher rent – apartment sizes have gotten smaller, creating more residential units per property or more space for amenities.
FitzGerald-designed E2 Apartments, a 353-unit high-rise apartment tower in downtown Evanston, Ill., that opened in April 2015 and is almost fully leased, has become the suburb’s premier luxury rental tower. Developed by Chicago-based Fifield Realty Corp., the building’s high-end unit finishes and long list of luxury amenities have successfully attracted renters on both ends of the age spectrum: students and young professionals, as well as North Shore retirees looking to downsize. Offering a mix of studio, one-, two- and three-bedroom layouts, along with 12 rental townhomes with private entrances, E2 features an impressive fourth-floor amenity deck, which includes a full-size basketball court, lounge area, party room with demonstration kitchen, media room, business center with conference room, coffee bar, and outdoor pool and spa with cabanas, grilling stations and dining areas. In fact, the building’s state-of-the-art fitness center has been so popular among residents that the developer is expanding the space to accommodate the demand.
Another prime example of the evolution of the amenity arms race is Arkadia Tower, a 35-story, 350-unit luxury tower developed by White Oak Realty Partners in Chicago’s West Loop. At the pre-recession start of the project, the developer had dedicated a minimal amount of space for amenities, which were limited to a deck on top of a parking garage. During the construction process, the developer recognized the need to substantially expand the amenity offering in order to compete with other new supply. By the time the project was completed in 2015, building amenities spanned more than half a floor and included a 24,000-square-foot outdoor sundeck with a pool, cabanas, grilling stations and seating areas; outdoor yoga studio; dining room; party room with chef’s kitchen; technology room with coffee bar; game room; private dog run and grooming station; and state-of-the-art fitness center.
Additionally, FitzGerald is the architect for the conversion of an existing 13-story office building in the heart of Chicago’s Loop into The Millennium at LaSalle, a 216-unit luxury apartment tower. Originally built in 1902 as the National Life Building and most recently known as Barrister Hall, The Millennium will offer studio, one- and two-bedroom residences and a full suite of amenities accented by historic design elements. Some of the Millennium’s unique differentiators will include a band “jam” room with recording studio; two console gaming rooms; media lounge; computer lounge; and bike workshop.
THE KEY TO SUCCESS: Technology Helps Landlords ‘Connect’ with Residents
Technology will continue to play a critical role as both a differentiator when attracting tenants and an efficiency tool for owners and operators. For today’s gadget-wielding “renter by choice,” connectivity is a way of life. And looking ahead, the next generation of renters will have never known a world without the internet. Complimentary Wi-Fi in common areas, keyless unit entry, in-wall USB outlets and even Bluetooth speaker showerheads are early examples of what will become an increasingly tech-enabled residential experience in the years ahead. Developers are already asking architects to incorporate innovative tech features in their designs, and those who embrace the trend going forward will gain a competitive edge in the market. We’ve seen the demand for tech-centric amenities – driven by both tenants and developers alike – fall into three categories:
Customization – Residents of luxury apartments are increasingly wooed by features that allow them to control their own environment through “smart” technology that facilitates the integration of multiple devices. The advent of smart thermostats, integrated speaker systems and other gadgets that “learn” preferences and schedules allows residents to walk through their door into an environment already programmed with their preferred temperature, lighting and even playlist. Units at E2 Apartments, for example, feature built-in wireless audio systems with in-wall speakers and electronic access control, as well as smart thermostats. Beyond just the marketability to prospective tenants, these features also help maximize efficiency for building owners and operators.
Service – In addition to hotel-level amenities, many newly developed rental communities offer a full support staff available to assist residents with everything from move-ins to package delivery. And in today’s age of instant gratification, many of these services are being demanded outside of regular business hours, when it may not be feasible to have someone on-site to assist with resident requests. Fortunately, the development and implementation of service-oriented technologies in multifamily buildings has allowed renters to access many of these conveniences 24/7 – often via their preferred digital platform, whether it be a smartphone, tablet or computer. Among the most requested technologies: self-serve package retrieval systems that allow for around-the-clock deliveries. These have been added to both new and existing communities as residents do more of their shopping online and have the ability to request same-day and even next-hour delivery service. Other examples include automated dry cleaning valets and digital concierge services, among others.
Entertainment – Technology is also revolutionizing multifamily recreational spaces. From game and media rooms that can stream video from multiple devices simultaneously, to fitness centers with on-demand programming and smart equipment that allow residents to track their progress and even “compete” with workout buddies, to professional recording studios with the latest and greatest sound systems, developers are constantly looking for new ways to apply technology and deliver a residential experience that renters can’t get anywhere else.
RESIMERCIAL: Blurring the Lines Between Home and Work
The so-called amenity arms race is not isolated to residential buildings alone. As the lines continue to blur between live, work and play, we’ve seen an increased desire among commercial building owners to incorporate amenities traditionally seen in residential buildings into office spaces, largely attributed to the desire to keep vacancies low and keep up with new Class A buildings.
In addition to featuring a more inviting, home-like aesthetic – achieved through warmer colors, softer lighting and higher quality textiles – many of today’s office buildings include amenities more commonly found in a residential setting. Break rooms mimic high-end home kitchens, while employee lounges and “family rooms” – rather than formal board rooms – serve as the ideal setting for breakaway sessions to collaborate or work privately. Similarly, game rooms, complete with ping pong tables, video gaming and golf simulators; rooftop terraces; fitness centers; and even nap rooms provide employees a place to recharge during the workday. As most of the workforce is connected 24/7 and workdays are no longer restricted to 9-to-5, employers continuously seek ways to attract and retain top talent. With office vacancy rates stagnant, according to recent reports published by JLL and CBRE, hard-to-find differentiators offer building owners a way to stand out and stay competitive.
IN THE END: Invest in Amenities
As the competition to attract and retain tenants in both residential and commercial buildings is as strong as we’ve ever seen, there is no denying the impact differentiating amenities can have on occupancy rates and tenant satisfaction. Thoughtfully-incorporated amenities can result in a highly desirable asset with low vacancy rates able to command higher rents per square foot – the perfect equation for institutional investors looking for a solid ROI.