As Millennials Embrace the Suburbs the CRE Industry Responds
- Jason Gordon
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Burdened by student debt and facing an unaffordable residential market, many millennials have by necessity delayed purchasing a home. The toy company, Hasbro, has even released a new version of its iconic board game: Monopoly for Millennials. In this variation, players don’t buy houses, rather they purchase experiences, such as free visits to either a vegan restaurant or a meditation retreat. And there is no truth to this satirical university study’s findings that the most popular fantasy for millennials is role playing as a couple that owns a house. But fortunately, things finally appear to be changing.
The millennial generation (those born between 1981 and 1996), while still too young to be major investors in the CRE sector, are nevertheless beginning to serve as a guidepost in terms of where near-term industry resources might flow.
The Pew Research Center reports that by as early as 2016, millennials represented the largest sector of the U.S. workforce. And by next year they will constitute 46% of all employed Americans. Reputed not only for their technological savvy, progressive views, and civic mindedness, but also for both urban and urbane inclinations, the available data suggests that a seismic shift is afoot, undermining at least one stereotype – exactly where they are choosing to call home.
Corporations and builders have taken notice. Let’s take a look at the lifestyle choice of those also referred to as generation (or Gen) Y, and how the CRE industry is responding.
Where are Millennials Choosing to Live?
The American Community Survey (ACS), published by the U.S. Census Bureau released its latest findings in January, covering the time period between 2013 – 2017. Although the stats do not cover 2018, they still provide the most comprehensive national picture we have, offering a mid-decade snapshot of where millennials are choosing to live.
Contrary to conventional wisdom, millennials have been migrating in significant numbers to America’s greener pastures. Based on an analysis of the ACS data, NewGeography.com reported, “America’s suburbs and exurbs continue to dominate population growth among post-college millennials, those aged 25-34 in the 53 major metropolitan areas [studied].” But it’s the extent of the demographic shift that is most surprising: The ACS data indicates that 78.9% of the major metropolitan area population growth among those aged 25 to 34 has occurred in the suburbs and exurbs. The urban cores accounted for just over 20% of millennial growth. Further, just a handful of legacy urban core cities (NYC, DC, San Francisco, Chicago, Boston) accounted for over two thirds of that growth.
Cushman & Wakefield, among the largest commercial real estate services firms in the world has acknowledged the shift: “Millennials are now the largest group of home buyers, and the majority of homes they purchase are in the suburbs. The next few years will see millennials continue to get married, have children, buy houses, and move to the suburbs in similar ways to previous generations”
And the National Association of Realtors alerts us that the ACS trend is continuing. As of mid-2018, only 15% of recent millennial buyers have purchased a home in an urban area, down from 21% in 2015.
“Research and data [have] dispelled the long held myth that millennials are city-flocking suburbia haters … many are turning to the suburbs with their families,” a December 2018 article in Bisnow observed. “The first phase is millennials moving to the suburbs for larger, more affordable homes and access to schools, so adequate single-family and multifamily housing will be necessary. Retail follows rooftops, so retail development to meet the new residents’ requirements will follow.”
The CRE Industry Responds
While numerous reports in recent years have documented corporate moves from suburban locations to city centers, there is now convincing evidence that heightened new home construction and corporate employment centers are/will inevitably follow the millennials to the suburbs and exurbs.
Governing.com, in a late 2018 article confirms that the CRE industry is indeed responding. “Suburbs are seeing a boon in apartment construction in response to market demand and demographic change.” And in a 3/13/19 article on the same website states: “The suburbs and exurbs in the hottest housing markets stand out with especially high permitting rates.” Importantly, the trend is a national one, with home construction permitting rates at especially high levels in cities as geographically diverse as Apex North Carolina (a suburb of Raleigh), Frisco Texas (a suburb of Dallas), Redmond Washington (a suburb of Seattle), and Buckeye Arizona (a suburb of Phoenix).
As Bloomberg advises, “Urban cores have to worry about the possibility of being overbuilt. As millennials age into their 30s and home ownership is on the rise, demographics are now moving against urban landlords. As people move into the suburbs and exurbs, they may want employment options other than long commutes into urban cores – a threat to the sparkling new corporate campuses built for this cycle. For millennials, the suburbs are the new city and employers chasing young talent are starting to look at them anew.”
Leading what could become a major corporate return to the office parks of the suburbs and exurbs are the biotech companies. Corporations in this industry usually require large spaces for laboratories which are very costly in many urban cores such as Boston or New York. (This financial consideration is particularly important for the many startups in this industry that may be operating with limited capital.) The millennial move to the burbs provides an extra incentive for these firms to decamp from urban centers.
Biotechs such as Modern Meadow and Exosome Diagnostics are exiting from expensive New York and Cambridge for Nutley, New Jersey and Waltham, Massachusetts respectively. Dragonfly Therapeutics Inc. also left Cambridge where the company was founded in 2015, and it too settled on Waltham.
According to an article by Melissa Reagan, head of research for TH Real Estate, an affiliate of Nuveen, “Our research indicates that both older and younger millennials will … migrate to the suburbs of either the metros they currently live in or to the suburbs of more affordable metro areas with favorable job growth.”
And in an interview with Commercial Property Executive, the same Ms. Reagan explained that suburban office markets could benefit from millennials moving to the suburbs. “This could increase demand for suburban office space, and it could go through a renaissance … Suburban office markets could benefit from millennials living in the suburbs [who may] want an easy commute, which means they may want to work in the suburbs in addition to living there.”
As the millennials marry and raise families, they are following the pattern of the generations which preceded them: they are moving to the suburbs. And, as referenced earlier, the trend of corporate headquarters relocating to urban centers is likely to reverse itself once more. Regardless of those unique qualities which define the millennials, their basic needs are really very similar to that of previous generations which foster practical choices concerning affordability, safety, space, good schools, etc.
On that note, it’s a good time to conclude this article. Is anyone else craving avocado toast with a light olive oil drizzle and a sprinkle of salt?