Keeping an investment strategy grounded during times of high uncertainty and economic volatility can be a difficult task. John Chang, senior vice president of research services at Marcus & Millichap, says that demographics are an important tool to keep CRE investors pointed in the right direction for the future.
In times of high volatility, some standard advice in equities investing is to avoid panic and knee-jerk responses to price shifts. Even in some large downturns like the global financial crisis, many people watched values falling before their eyes and sold off their holdings. Yet, within a few years, markets returned to their previous heights and then kept climbing.
Chang is a CRE veteran who remembers cycles back to the Dot-com days. Although property prices don’t exhibit the rapid price cycles of stocks, that information that can influence strategies and future plans jitter in similar ways.
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“We’re in a period of change where things are happening so fast the data can’t keep up,” Chang said in a video, pointing to economic forecasters who reverse their projects within weeks and a CPI showing slower inflation “came out the same day as 25% tariffs on aluminum and steel went into effect.”
He’s found from past experience that at times like these, good advice is to turn away from distracting media and focus on demographics.
“The sheer mass of baby boomers will impact all types of commercial real estate,” says Chang. “Each day, 11,000 people turn 65. Over the next five years, the number of people between the ages of 70 and 74 will increase by 1.8 million people. There will also be 1.8 million more people who are between 75 and 80, and there will be 3.3 million more people who are over 80 years old. That’s an increase of about 21.8% over the next five years.”
He went on to explain that while people between 18 and 44 see a doctor about 1.9 times a year, for those 65 and older the average is 7.1 times. Healthcare systems need space to accommodate the increased traffic.
Simultaneously the predictable “massive surge of medical services demand” has been a “tapering” trend in medical office space construction.
“Think about how the aging of baby boomers will affect housing demand, retail demand, and even self-storage demand,” Chang said. “And that’s not even mentioning seniors’ housing, which has already seen significant occupancy gains.” Other property types will feel similar effects from the demographic shift.
“That’s something investors should keep in the back of their minds as they keep their eyes on the horizon,” he said.
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