MIAMI—Aging Millennials will move back to the suburbs, reversing the previous tide of urban living and working. So says David Rabin, managing director of Private Real Estate at CenterSquare Investment Management.
“This is an interesting shift in suburban demographics that will increase demand for suburban multifamily, which will outperform the high-end urban multifamily market, where rents have peaked due to excess supply and affordability challenges,” Rabin tells GlobeSt.com. “Well-located and properly amenitized suburban office will be another beneficiary as Millennials seek an urbanesque environment in the suburbs.”
Rabin also predicts shifting perceptions in big box industrial. As was the case with the enthusiasm that surrounded urban multifamily, he expects the appeal of big box industrial investment will begin to soften in late 2018. (Here's how lenders are targeting multifamily sector gaps.)
“With prices already beginning to exceed replacement cost, further development occurring and a growing pipeline, the market will either meet its equilibrium or become oversaturated,” predicts Rabin. “Higher supply and lack of optimal locations for the new product will impact the ability to achieve occupancy and rent targets therefore providing headwinds to valuations going into 2019.”
Clearly, the market for big box industrial is inherently limited, with fewer companies existing to serve as end users of such large spaces. Rabin says rent levels face ceilings as well with supply being less constrained as developers move further out to find cheaper land combined and big users who will move to save a penny in rent.
“A broader demand pool exists for companies targeting mid-size and smaller spaces at infill locations that can help them access and service their customer base,” he says. “Furthermore, supply in the smaller, infill industrial space is limited as high land prices and obsolete functionality have made new development uneconomical in the face of declining inventory. Collectively, these demand and supply forces should provide support for strong fundamental performance in this sector.”
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