Economy, Demographics Are the Trends That Matter the Most to CRE

In a brief video for Marcus & Millichap, Senior Vice President of Research Services John Chang started by discussing hockey great Wayne Gretsky and his famous saying that he “skates to where the puck is going to be,” not where it’s been.

People often quote Gretsky when discussing the wisdom of looking ahead as far as possible. The strategic concept is far older than the National Hockey League. In virtually any industry, looking to where forces might converge is important. “And that concept is key for commercial real estate investors,” Chang said. “We need to look forward.”

What makes his talk interesting beyond quoting “the Great One” is his identification of the economy and demographics as tools to achieve farsightedness. He noted that a hefty portion of GDP — almost 69%, according to the U.S. Bureau of Economic Analysis — is driven by consumption.

“Consumption includes both retail sales, which is about 40% of the total, and services expenditures, which is about 60%. And all of that is driven by spending, which is, of course, influenced by income.”

The consumer segment that earns and spends the most is the 45-to-54-year-old group. Income has accelerated with solidified careers but it’s before they turn full attention to retirement. Next is 35-to-44 years old, then 55-to-65.

“And as I thought about these age groups, it occurred to me that the largest U.S. age cohort is the millennial generation,” Chang added. He pointed out that millennials, born between 28-and-43-years-old making up a total of 72.2 million. He then walks through population counts going forward, projecting what would happen. “What that tells me is this: the U.S. economic growth outlook remains strong over the next 10 years. Yes, there will be bumps in the road and there could be short-term downswings along the way, but over the course of the next decade, the tide will be rising.”

He then added two additional factors — reshoring and nearshoring of manufacturing and the transfer of wealth from millions of baby boomers to younger generations, likely mostly millennials. That will have a value of between $70 million and $90 million. “The increased wealth and spending will drive space needs for retail, self-storage, industrial space, hotels, and even apartments.”

Investors should look ahead and realize that the best time to put money in is at what seems a low point when a crest is obviously building ahead.