The idea of a living near the office or workplace is not new. It was the norm in America before the advent of the automobile, when miles of pavement stretched the distance between where people lived and where they worked for the first time.
But developers of both for-sale and rental homes say that trend is now reversing itself rapidly as technology alters the concept of work as a place and demographics change the lifestyle demands of consumers. In addition, when these remote workers finally clock out, they want to be able to walk to amenities like restaurants, shopping, clubs, and movies.
These shifts, industry insiders say, are transforming residential development and the strategy builders and developers apply to their businesses. The focus is now on a live/work/play mentality, says Russell Tepper, senior managing director for Dallas-based Mill Creek Residential, which has developed 25,000 apartments in more than 90 communities since 2011.
“People no longer work from 9 to 5, in an office, with a mandated, hour-long lunch break where they punch a time card,” he says. “That hasn’t existed in our economy for a long time, and, as a result, people are living and working differently.”
For developer Art Falcone, whose career has spanned nearly 40 years and has encompassed everything from master planned communities in the suburbs to urban towers, the trend is a watershed moment that unwinds six decades of U.S. development history.
“After World War II, we got into this highway craze in America, of getting in the car to drive out to the suburbs,” says Falcone, CEO and managing principal at Boca Raton, Fla.–based Encore Capital Management. “That was the trend for 60 years, probably up until about 12 years ago. But now, millennials and Generation X want to be back in those urban-like settings again, where they can walk and never even have to get in their cars. The world has changed pretty dramatically, and it’s not going to flip back anytime soon.”
As Eugene Diaz, principal at Bloomfield, N.J.–based Prism Capital Partners puts it, “the changing face of technology is making workspaces that are separate and distinct from living spaces a thing of the past.”
The live-work trend and young people seeking a more urban-like setting both are impacting the business of building and developing.
According to Gallup, 43% of Americans spent at least some time working remotely last year, a 10% increase from 2012. And where those workers live today isn’t defined as much by the location of a traditional office as it is a home that’s in proximity to a shared or co-work space, where professionals can gather and be “alone together” to work.
For architect Thomas Wall, owner of Mitchell Wall Architecture and Design, who designs single-family houses and works with builders and developers from his office in St. Louis, the live–work paradigm change is hitting single-family developers, who are scrambling to keep up.
“There’s definitely a shift occurring, and the shifts in tastes and demands typically move faster than builders and developers can respond to them. Nobody wants a McMansion anymore,” says Wall, who adds buyers are looking for smaller, more functional homes that are easier to maintain. “While there are some nimble builders and developers who are responding to the live–work trend, it’s going to be a struggle, because the way builders have approached their clientele for the last 30 years isn’t going to work anymore.”
Jerry James, president of Glenview, Ill.–based Edward R. James Cos., which operates in the close-in suburbs of Chicago and had 105 closings in 2016, according to Metrostudy, says that when the recession hit his area, it drove many of the big builders focused on the farther out suburbs away, since that market deteriorated so quickly, and it pretty much hasn’t come back since.
James saw this as an opportunity since he was building in smaller infill locations closer to the city, and buying activity, when there was any, was happening in those areas. “At that time, the market came to us,” James says.
More recently, as the markets in the hinterlands have remained tepid, he’s been seeing more large builders—such as Toll Brothers, D.R. Horton, and PulteGroup—coming to the infill areas that were once exclusively the turf of smaller builders like his.
“The big builders have come in to town to become infill builders, because that’s where younger people want to live now,” James says. “So that has really forced us to sharpen our focus and maximize our competitive advantages and the relationships we already have in the market.”
Pulte division president Brandon Jones says the company has successfully been doing more infill projects in Michigan, but his teams have to work harder to pull them off.
“Those infill projects tend to be small and very entitlement intensive, which makes them very attractive to smaller builders who aren’t as focused on ROI as Pulte,” Jones says. “Those factors make these kinds of projects very competitive.”
That trend is not only impacting where builders are building, but what they build once they get there, too. That’s because for today’s buyers, bigger isn’t always better. “Millennials emphasize quality over quantity,” says Wall. “The next generation would rather have a better, more functional space than a larger space. Nobody’s going to care how big your houses are if you’ve got fiberboard used as a chair rail that falls apart when it gets wet.”
From a more fundamental perspective, these changes also mean that builders and developers need to foster core competencies across a spectrum of disciplines. With residential communities now encompassing live, work, and play—often in close proximity to each other—companies need to be better in more diverse areas while still being able to develop those various elements simultaneously.
“Developers are being forced to have more expertise, and be able to do more than one thing well,” Falcone says.
For example, while the poster child of residential development may have been a suburban, greenfield community 20 years ago, those types of projects have lost appeal for developers and potential residents alike.
“The days of greenfield development and straightforward processes are long gone,” says Mill Creek’s Tepper. “Our focus is now primarily urban or suburban areas that have some type of attraction, whether that’s mass transportation, cultural amenities, access to highways, or institutions of higher learning or medical centers. Those are the things that attract renters by choice.”
Or, as Falcone puts it, “The neighborhood now is the amenity.”
The good news for single-family and master plan developers is that suburban, single-family communities can offer the amenities that live–work properties provide in the urban core, within a relatively contained space that’s still desirable to home buyers.
“Doing it in a master planned community is much easier, because you’re not building anything on top of each other,” says Falcone.
Multifamily builders are on the forefront of developing ways to foster the live/work/play lifestyle, and many of their ideas are applicable in single-family communities as well.
Lennar Multifamily Communities (LMC) offers STLT (pronounced “satellite”) office spaces within its buildings where residents can use private rooms for calls and meetings, print out documents, and plug into mounted screens and TVs.
“We decided, instead of all the kitschy amenities that nobody really used like wine cellars, demonstration kitchens, and lobby theaters, why don’t we give them a real offering? Somewhere they can actually get work done,” says J.J. Abraham, California division president at LMC. “Holding a meeting at Starbucks just doesn’t cut it for everyone because it’s too darn loud. This is a real workspace.”
While the company hasn’t been able to monetize those spaces, Abraham says having them helps prospects justify spending more on rent because they can in turn save on office space.
The live–work trend is also pushing developers to take on projects they may not have considered in the past. Take Arlington, Va.–based AvalonBay’s co-branded Avalon Willoughby Square and AVA DoBro project in downtown Brooklyn. As part of the same building—AVA DoBro’s floors have an eclectic, neighborhood feel, while Avalon’s top floors feature more classic, sophisticated designs—the two brands share the 30th floor, which offers a designated “chill” lounge for socializing. Most residents use the area to practice the quintessential millennial art of being alone, together.
For Nancy J. Ruddy, founding principal of New York–based firm CetraRuddy, which designed the space, having that kind of informal, yet work-oriented functionality is key in development today. “The ability to be alone together, in a space where you can read or work in an exciting atmosphere, is critical,” she says. “It expands the experience and enjoyment for residents living in the building.”