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New report offers insight to industry's future

Market niche specialization, innovative in-unit amenities, foreign expansion and providing a greater array of highly flexible services and information technologies are potent opportunities for growth in the apartment industry during the next 10 years, according to The Future of the Apartment Industry.

This detailed report prepared by Coates & Jarratt Inc., a Washington, D.C., research organization specializing in the study of the future, was commissioned and is being published by the National Multi Housing Council and National Apartment Association. The following observations are based on the report's conclusions.

In the domestic market, new forms of seniors housing, new apartment communities and in-unit amenities could expand business and profitability. "Further opportunities lie in foreign markets," the report notes.

To offset the home ownership movement, the multifamily housing industry should focus on cultivating more habitual, lifelong apartment residents by emphasizing the greater flexibility and service available in multifamily communities. While this may run counter to the so-called American dream, it closely matches the 1990s two income, time stressed realities of daily life.

Moreover, as consumers experience the risks and inconveniences of owning a home for a limited period and then relocating, renting will become more attractive. Multifamily housing will benefit from its flexibility, the ease of relocation and a much smaller home-maintenance burden.

To encourage apartment living, the multifamily industry could: Promote "permanent" lifelong rentership; develop new mechanisms for conversion to apartment ownership or participation in other equity positions to allay renters' concerns about a lost investment opportunity; and provide a broader array of innovative amenities.

New or expanding markets for the multifamily industry over the next 10 years will include seniors housing that emphasizes independence and service, short-term housing for business people on temporary assignments, and home offices equipped with full telecommunications capabilities.

Limited expansion is expected over the next 10 years in the U.S. apartment market, primarily due to the middle aging of the population and the modest size 6f the baby bust generation. To offset this trend, the multifamily housing industry should target Mexico and Canada for growth. Their proximity to the United States and familiarity with American amenities would give the industry a significant advantage in successfully diversifying into these new markets.

The demands for convenience, time savings and value-driven services are creating a need for integrated performance systems (IPS), which respond to every aspect of customers' housing and home-life activities. The edge in competition will continue to go to businesses that offer the most service, quality, reliability and flexibility at the best price.

Flexibility in the apartment industry means giving residents more options and the ability to alter their units and leases without penalty. Examples include units that can be reconfigured with moveable walls and changeable modules and decor, and flexible rent payment plans, in which payments can vary by times of the year.

The report suggests that continuous surveying of residents through regular focus groups, electronic suggestion boxes and other mechanisms will improve quality, service and reliability, and identify opportunities for improvement. Apartment operators should recreate themselves by asking managers for ideas on how to become a "total home needs provider."

Over the next decade, environmental concerns will influence every aspect of the multifamily industry. Apartment construction and management companies will be faced with a growing litany of environmental regulations, but at the same time environmental friendliness will become a higher priority for renters. Properties practicing energy conservation and waste recycling will benefit from greater recognition in their markets.

Key elements of the U.S. demography will be among the most powerful factors influencing the apartment industry during the next 10 years. Trends will include:

* An aging market;

* Shrinking entry-level groups for the housing market -- a switch from baby boomers to baby busters;

* Growth in the number of households, particularly from immigration;

* Shrinking household sizes;

* A mobile U.S. population;

* Greater cultural and lifestyle diversity.

In order to capitalize on these demographic swings, the multifamily housing industry should develop marketing campaigns and incentive packages to retain residents longer or permanently; enable residents to move easily among units of various sizes, and possibly modify unit layouts for residents; create new programs for an increasingly mobile population, such as transferable "seniority" with rent discounts, referral services and moving services; and build or rehab units to suit lifestyle niche markets.

Information technology is the most powerful force shaping building management and operations, and the lifestyles of residents. Every aspect of building management can be monitored and controlled through information technology. For example, energy use, security, communicating with residents and rent collection could all be at least partly automated. The transformation will go beyond the mere substitution of human labor with automated equipment. It will also create new capabilities for managers, such as the ability to troubleshoot and sometimes repair a system from a remote location.

For residents, information technology offers new services, entertainment and work capabilities. The most significant new use will be by those people who work at home. Their needs imply new unit designs, dedicated workspace and the latest telecommunications cabling. People also will enjoy using telecommunications and information technology for entertainment and educating their children. With tens of millions of homes using PCs, faxes, cellular phones and interactive television, the U.S. market for apartments on the information highway is certain.

The economies of scale in multifamily structures allows the industry to offer the cutting edge of technology to residents. Through careful niche marketing, apartment developers and managers could test communities with per-unit home work/study centers and other state of the art technology. Key considerations to keep in mind while planning for the next 10 years are:

* Mobility is high. One of six Americans moves each year, though more move to homes nearby than out of state. Renters are even more mobile; about a third of them move each year. One response to mobility could be national apartment housing networks to help people find appropriate housing when they move, possibly allowing an apartment company to retain residents who relocate.

* Shrinking household size may stabilize at about 2.6 persons, which is the present number. But this does not necessarily imply that consumers want smaller apartment units. Many may reallocate space to new uses, such as home offices.

* Immigration and the accelerating growth of minority populations in the U.S. drive diversity. New family forms and alternative lifestyles are also creating diversity. The apartment industry's response should include new designs, layouts and structures, theme housing for specific interest groups, and new service options.

* Population changes present an unprecedented need for the industry to offer variety and flexibility to hold a competitive edge. Surveys, focus groups, pilot projects and other research are needed to determine how to meet the market's needs.

Richard L. Michaux is chairman of Avalon Properties Inc., Alexandria, Va., and chairman of the board of directors of the National Multi Housing Council (NMHC). Jonathan L. Kempner is president of NMHC, based in Washington, D.C.

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