Despite notions to the contrary, most Millennials want to own their homes – 93% of them, according to Trulia. But stagnant wages, student loan debt, and stricter lending policies have kept homeownership rates for those under 35 at 34.7% – 29% less than the national average.1 These facts have led to unprecedented growth in single renter households, which, according to a recent Harvard study,2 are projected to account for 44% of rental household growth over the next decade.
You might say that Millennials are caught between their financial capabilities and their home owning ambitions. But this in-between situation presents an opportunity with a strong value proposition for both the tenant and the multifamily developer. By offering pre-furnished apartments, developers can provide an attractive product that caters to Millennial lifestyle preferences and improves the tenant experience while simultaneously commanding a premium over comparable, unfurnished apartments and increasing the developer’s ROI.
In many ways, the United States – where unfurnished rentals are the norm – is an outlier. In other parts of the world, the itinerant nature of the renter is an accepted fact and many rental apartments are supplied furnished, allowing the renter to sidestep the inconvenience and expense of buying and moving furniture every time they move into a new space. But in the U.S., along with the recent increase in construction of compact multifamily units designed specifically for single renters, some developers are now catching on, offering high quality furnished or semi-furnished apartments that have specific appeal to Millennial renters’ needs and desires.
Testing the Market
Christopher Bledsoe is the co-founder of Ollie, the company responsible for furnishing units at Carmel Place, New York City’s first micro-apartment building. Because of the project’s novelty and a lack of marketplace data, Ollie and developer Monadnock were unsure whether they should provide the units furnished or not, so they split the total units between the two categories.
Their initial uncertainty was replaced by clear results. “In side by side tests, Ollie’s furnished units, which feature multi-functional wall bed systems from Resource Furniture, have regularly outperformed comparable unfurnished units by a margin of three to one,” Bledsoe reported.
NYC developer Seth Weissman had an equally positive experience with the furnished units he brought to market. He sees these apartments as a natural fit for Millennial preferences. “Furnished housing ties directly into a Millennial preference for flexibility and a desire for freedom to create their own path,” Weissman remarked. “It may seem like a small thing but investing in furniture at an early stage in your life and career is both a physical and financial burden… Not having the additional upfront expense of furnishing apartments provides financial flexibility and the freedom to move easily and adjust their space requirements as their lives evolve.”
Benefits of furnished apartments are not limited to the renter. As Bledsoe mentioned, furnished units can benefit developers through the speed of leasing. He also said that his firm has been able to recover the upfront capital expenditures and establish ongoing capital reserves through the premiums the furnished units command.
Weissman also says that maintenance has not been the bogeyman some developers think it will be. After three years of use, the transforming furniture in his units has been trouble-free. He also said he has unexpectedly saved money because of reduced wear and tear on the apartments and building since tenants are not moving large furniture in and out.
Offering furnished units gives the multifamily developer a unique opportunity to meet the economic realities and lifestyle preferences of Millennial renters, while simultaneously making units more attractive and profitable – a win-win any way you look at it.
1 Ely Razin (2016, April 27) How a Reversal of the Millennial Rental Trend Would Affect the Multifamily Sector. National Real Estate Investor
2 Joint Center for Housing Studies of Harvard University (2013, December 9) America’s Rental Housing: Evolving Markets and Needs