Millennial Migration Reshapes Real Estate Landscape

Demographic data is a reliable metric real estate investors should pay attention to as real estate usually involves an extensive hold period of five to 10 years on average despite other market factors. In particular, examining how demographic cohorts’ behavior is changing could help investors build a long-term outlook, said Marcus & Millichap national director of research and advisory services John Chang.

Millennials have been playing a significant role in changing the landscape of real estate for more than a decade. This generation, for example, has pushed the median age of marriage to 29 years old, compared with 25 years old two decades ago.

“That shift, which was led by the 72.5 million Millennials, changed housing demand, urbanization trends and the space demand profile of every type of real estate,” said Chang.

Millennials favored the urban core during the 20s, but as they move into their 30s and 40s, many are getting married, starting families and moving to the suburbs. This slow migration that was underway by 2015, has led to weakening demand for urban real estate and is similar to the impact Baby Boomers made in the 1980s and 1990s as they moved away from cities, said Chang.

Meanwhile, Millennials are now on the cusp of aging into their prime earning years, and the generation behind them – Gen Z – is hitting their mid-20s and can expect to see a significant jump in earnings.

“Over the next five years, assuming the labor force participation rates remain relatively stable, the maturation of both the Millennials and Gen Z into higher earning age groups should generate a substantial lift in their earnings,” said Chang. “At the same time, the traditional loss of earnings as older generations move out of the workforce is slowing, as many in the Baby Boom generation will likely work well into their 60s.”

The result of these dynamics, assuming the economy remains relatively healthy, could be a 2% increase in personal earnings over the next five years, said Chang. That would generate $200 billion of income which is likely to drive consumption and positively impact the economy. This trend should lift space demand for all types of commercial real estate, with retail, industrial, self-storage, hotels and housing all benefitting from the positive demographic lift, he said.