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millenials young youthLarge job hubs in the United States such as New York City, Dallas, and Atlanta, will enjoy an upsurge in housing demand fueled by Millennials – the largest generation in U.S. history. However, not all types of housing will prosper.

“The biggest, most obvious way Millennials are impacting the residential real estate market is based on the sheer size of the cohort – it will create massive demand,” said Vincent Lefler, from JLL’s Capital Markets team in Atlanta. According to the U.S. Census Bureau, the Millennial population – at 75.4 million — overtook the number of baby boomers in 2015, and will reach its peak at 81.1 million in 2036.

“This boom will fuel significant need for housing stock, especially in light of the meager deliveries of new single or multifamily housing during the Great Recession,” Lefler said. “This increased demand should create solid stable [rental] income to provide safe, predictable returns for investors.”

Numerous surveys have shown that Millennials are more likely to rent than buy, although they do aspire to own their own homes in the near future. Strapped with higher debt due to student loans and struggling with lower starting incomes as a result of the recession, Millennials tend to hold off on big commitments such as marriage and home ownership, resulting in higher demand for rental housing. This has the add-on benefit of facilitating job mobility and travel.

Among suburban innovation hubs, secondary cities such as Nashville, Austin, Denver and Raleigh will also attract a higher percentage of Millennials. “These cities provide a higher quality of life while being more affordable,” says Lefler.

Older properties that are in good locations provide another opportunity for investors who are seeking rental income. They are “prime investor targets for value-add upgrades to cater to increased Millennial demand,” he says.

No one-size-fits-all While studies show a rising demand for residential units, not all types of housing in these locations will do well. According to PWC’s Emerging Trends in Real Estate 2017 report, “analyses of Millennials’ preferences have identified density, diversity, walkability, and transit accessibility as factors in location choice for this 83 million–person demographic cohort.”

The traditional block apartments will not attract the new generation, Lefler stressed. While Millennials may initially have lower discretionary incomes, their parents saw a significant increase in wealth and quality of life during their prime earning years in the late-1990’s through mid-2000’s. As a result, Millennials have grown accustomed to private bedrooms and higher quality finishes than their parents, he explains.

The Millennials market segment favor apartments with high-end amenities and unique finishes. Even recent student housing developments recognized the Millennials’ need for better housing.

The University of Texas- Dallas campus, for example, has started construction of two additional apartment style complexes. The one-bedroom/two-bedroom apartments feature laundry rooms, outdoor recreation areas and open-multipurpose spaces.

Since Millennials are more social than previous generations, rental housing should address their need for social spaces. Lefler said those with meeting rooms, fitness centers and rooftop lounges would have an edge over those without. While the rental rates in these housing units will be higher, the amenities will prompt renters to stretch their budget.

As the most tech savvy and tech dependent generation, Millenials will gravitate to properties with ultra-high-speed, fiber optic networks and wide-area Wi-Fi.

Choosing between size and location

As apartments become more expensive to build due to rising construction costs, tenants have started making trade-offs between size and location. As a result, demand for studio units has been strong. According to a report by the Urban Land Institute, risk exists in shaping the built space in emerging Millennial magnet cities too closely to the young resident’s current needs. “Buildings filled with micro units and heavy on amenities are likely to hold less appeal to Millennials as they get into their child-rearing years,” it said. Some developers have started to build larger housing units, in which flexible space can be repurposed by Millennials with children.

Undoubtedly, this new generation of workers has different purchasing and lifestyle habits, which are challenging the old models of real estate. As the U.S. economy shows signs of strength, helping to fuel job growth, this booming Millennial population will increase housing demand and, in turn, investors should expect a more predictable return on investments in the U.S. residential market.

 

Source: theinvestor.jll

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