While development site sales were a bright spot for the US real estate market in 2020 as they only fell 5%, apartment builders pulled back last year, according to Real Capital Analytics data. 

That reversed a five-year trend of apartment developers leading the way, accounting for 44% of commercial property starts. It is not surprising:  the apartment sector was the first to see price discovery since the Great Financial Crisis and became the most heavily traded property type in the US, according to RCA.

“With rising prices and growing investor interest in the sector, development was the next logical step,” writes RCA’s Jim Costello. “In other words, if you can’t buy it, you build it.”

But in 2020, developers, who mainly specialized in apartments, pulled back, not buying as many sites, according to RCA’s data. Those developers who had 80% or more of their starts in apartments were responsible for nearly almost a third of all development site acquisitions in the previous two years. But in the 12 months through Q3 2020, they only made 22% of acquisitions.

Costello says the pullback from developers was probably not a function of COVID. Instead, it stemmed from broader trends before the pandemic hit, such as cap rates that had been rising in the six major metros since mid-2017. Investors were pricing in the uncertainty of burdensome local regulations and shifting demographics as millennials began to age out of cities, according to RCA.

Still, cap rates are falling in the non-major markets, which should become attractive to developers.

For example, a report last Fall from John Burns Real Estate Consulting indicated that short-term rentals, which it defined as a one-to-two-year lease terms, in suburban markets could make sense for developers. These can serve people looking for work-from-home space and outdoor access.

Co-living deals can also pencil out, though the financing isn’t easy. Co-living properties need to meet a few specifics to attract lender interest. “It is still limited and it is a tough asset class to get done right now,” Shahin Yazdi, principal and managing director at George Smith Partners, told GlobeSt.com in an earlier interview. “People do not know what the future holds in this space; however, there are still lenders interested in the asset class with the right dynamics at play.”

The hottest rental property type may not be apartments, though. As people have left the city seeking space, rents have risen in single-family rentals. That can be a draw for developers. For instance, in October, Phoenix-based apartment developer PB Bell entered the single-family rental market.

“We are developers, and we manage and own apartments. We don’t currently have any ownership in single-family product, but we are in the process of doing so for a lot of different reasons,” Chapin Bell, CEO of PB Bell, told GlobeSt.com in an earlier interview. “We have seen very positive demand for single-family. If you are in the market looking for a single-family rental, it is relatively difficult to find because occupancy levels are so high. Millennials want the single-family experience with the benefit of a professionally managed and amenitized community.”