A new trend is taking place where Millennials—the largest population group in America at 75 million strong—are moving back to the suburbs they grew up in. This comes from the latest research performed by PwC and the Urban Land Institute and outlined in their Emerging Trends report, which aggregates the opinion of top real estate professionals around the globe.Predicting market demand is essential for investors looking to minimize risk and maximize rewards. That’s why we sat down with Mitch Roschelle—Partner at PwC and a widely-recognized commentator on real estate, business trends, and capital markets—to find out which suburban markets investors should pay attention to.
The Emerging Trends report, now in its 40th year, is a joint effort by PwC and the Urban Land Institute (ULI) and is one of the most highly regarded and read reports in the real estate industry. This year, ULI and PwC interviewed 750 individuals and received over 1,600 survey responses from real estate experts—including investors, developers, property companies, lenders, brokers, advisors and consultants—from around the globe.
PwC reports Millennials are already driving real estate demand in suburban markets. “It’s happening,” Mitch says. “Millennials have started to look for suburban-like settings where there are bigger homes and more open space.”Millennials, as it turns out, want the same thing their Boomer parents did back in the 50s; a safe, quiet community to raise a family. The traditional attractions of the suburbs—larger homes, good schools, and lots of green space—have not changed. What is different is that amenities now in demand include access to mass transit and walkable neighborhoods in proximity to shopping and entertainment.— PWC Emerging Trends Report 2019“What we’re seeing is clustering in either a semi-urban setting or a traditional suburban setting, as Millennials seek to live, work, and play in an environment that also benefits their children,” Mitch says. Development opportunities may include single-family or multi-family dwellings anchored by parks, recreation and education. “Because the commute your child has on the bus or on public transportation begins to matter,” Mitch says. To further support their findings, PwC mentions the latest statistics from the U.S. Census Bureau that reports over 2.6 million people a year have moved from principal cities within metropolitan areas to the suburbs in 2016 and 2017.
Millennials didn’t end up in Suburbia overnight. Mitch says the same thing happened when they moved from 24-hour cities to 18-hour cities. Let’s take a moment to define what that means. An “18-hour city” has a higher-than-average urban population growth and features a lower cost of living and lower cost of doing business than 24-hour cities. “These are places like Austin, Nashville, Orlando, or Tampa,” Mitch says.24-hour cities (or gateway cities), on the other hand, operate day and night and are often thought to include the “big six” markets of Boston, Chicago, Los Angeles, New York, San Francisco and Washington, D.C. As a real estate investor, you’ve likely seen investment opportunities in these booming markets. That’s because 18-hour cities offer viable alternatives to their 24-hour counterparts. The only difference now is that investors are considering the suburbs within these 18-hour hot spots. As PwC reports states, “The 18-hour markets that made the top 20 in this year’s survey saw an average of 55 percent of their new residents locate in the suburbs over the last five years.”
Mitch says the suburbs will transform with this new wave of demand. “There’s a rebirth and a re-characterization of what the suburbs look like, so they’re not necessarily the suburbs where baby boomers grew up,” he says. Many Millennials end up working from home, but there are still those that will be drawn to the suburbs that contain employment opportunities. “If jobs are truly chasing people, and jobs take place in office buildings, is there a rebirth of the suburban office as a result?” Mitch asks.Especially with the rise in popularity of co-working spaces in urban centers, it’s easy to imagine these services extending to suburban areas. “If for no other reason, it’s a touchdown point for people who work at home to get out of the house and plug in someplace else,” Mitch says.
The projected average annual population growth over the next five years in the 17 markets is 1.3 percent compared with 0.7 percent for the United States as a whole, while projected five-year annual employment growth is 1.2 percent compared with 0.6 percent for the United States.— PwC Emerging Trends Report 2019Mitch ran through the top 10 markets investors should pay close attention to. “In most of these markets, there’s a growing employment base that is stable,” Mitch says. “You have cities like Tampa and Boston that spent a lot of money in infrastructure, and are also low-tax jurisdictions.” “While Dallas/Fort Worth is number 1, Brooklyn is my personal favorite,” Mitch says. “Brooklyn is a place where Millennials want to raise families, so there’s a lot more real estate development potential including office space and urban infill warehouse opportunities.” Mitch’s Top 10 Suburbs to Watch in 2019:
**********Mitch recommends investors stay focused on the market fundamentals when analyzing trends. “The factors that are driving this current growth—demographics, workforce quality, attractive living, and business costs—aren’t going away in the future,” he says.So while It may come as a surprise to some that Millennials move to the suburbs, there are many investors who have seen this trend take shape for quite some time. But remember, an investment opportunity only makes sense if it fits in your own personal portfolio. *If you like this post, be sure to enroll in our free six week course on the fundamentals of commercial real estate investing — Enroll Now.***********