Urbanization is Strong, But Suburbia is Getting Stronger

Roschelle: “We should give more thought to small business because ‘it is reshaping office leasing in this country.’”

SAN DIEGO—There’s no denying the power of cities to attract the population, but Millennials are returning to the suburbs as their children reach school age, PricewaterhouseCoopers ‘ partner and real estate advisory leader Mitch Roschelle said during Burnham-Moores ‘ 20^th Annual Real Estate Conference here Friday. Roschelle gave a presentation for the roughly 800 attendees on emerging megatrends in real estate. Some of the top real estate trends Roschelle expounded on included 18-hour cities 2.0, surburbanization, changes in the office sector, housing options for everyone, parking changes, infrastructure changes, food getting bigger and closer, consolidation in REITs and a return to the human touch. Most notable about 18-hour cities is the growth in dollar transaction volume of some secondary markets including Atlanta, Charlotte, Dallas, Nashville and Portland. In those markets—in fact, in all markets that are rising in transaction volume, the common denominator was that the cost of living and the cost of doing business had both decreased from 2010 to now. While urbanization will see 72% growth between now and 2050, Roschelle said the suburbs are gaining ground. He pointed out that the age of which women are having children is rising, but the probability of women moving from the city to the suburbs increases as children enter school age; in fact, access to quality public education is cited as the number-one reason why people return to the suburbs. Interestingly, many Baby Boomers who become empty-nesters are now selling their suburban homes to Millennials leaving the city and moving to the city themselves, said Rochelle. Within the office sector, private workspaces per employee are shrinking, creating overstuffed offices and raising the dubious question of whether the aging office inventory can meet the demand of today’s tenants. Roschelle said the fundamentals for office use are good for real estate since the demand for modern workspaces is increasing; however, more people are leaving the workforce than entering it. He says we should give more thought to small business because “it is reshaping office leasing in this country.” With regard to housing, the decreasing homeownership rate has been blamed largely on Millennials, but Roschelle noted that the homeownership rate has decreased among every generational cohort—not just Millennials. He also said it’s cheaper to own a home than to rent in many markets, based on the percentage of income that goes to rent in those markets. Household formation may be ready to increase, but housing deliveries have not meant the demand; in addition, new homes are 30% higher in price than existing home sales, making it even more difficult for buyers to afford new homes. Urban farming has become a growing trend, with vertical farming expanding in a number of urban areas, said Roschelle. Also, legalized sale of marijuana in a few states is driving economies and creating a whole new brand of tourism in some areas. Roschelle said new growth markets include Atlanta, Phoenix, Houston and Orlando. There’s a lot of dry power ready to be deployed with not enough deals to meet demand, so there is potential for growth. The industrial market’s growth is another trend, led by online retail. “The industrial story is in many ways a Millennial story,” said Roschelle. He noted big growth in urban industrial as well as a robust lodging forecast.