Cities may have commanded much of the attention of investors and developers over the past decade, but suburbs hardly fell out of favor.
In fact, people of all ages continued to move to the suburbs, giving them roughly double the urban population, according to CoStar analysts in a recent webinar entitled
The suburbs, in fact, may be just the place for investing in apartments, office and retail properties, if millennials, the largest living generation, decide to do what previous generations have done before them and move there in droves. Indeed, one large block of millennials, those born in the early 1990s and reaching their 30s, are now forming families and looking to put down roots.
Their first stop likely will be in rentals. “A bet on them gradually putting on the trappings of adulthood feels safe, and bet against them being able to own homes at the same rate as their elders is also reasonable,” Andrew Rybczynski, a CoStar senior consultant, said in the webinar.
Rybczynski noted that homes, particularly starter homes, have not been “built at a rate that matches household formation over the past decade, to say nothing of student debt hindering saving for down payments.”
Moreover, apartments in the suburbs are not as pricey as urban apartments, even new construction. Average rent in the suburbs is about $1,400, which is a $900 discount to prime urban locations, Rybczynski said.
He said that means landlords have greater opportunity to grow rental incomes over time.
As they move to the suburbs, many millennials likely will want to work closer to where they live. Some will likely seek out what the Urban Land Institute dubbed "hipsturbia": hip, cool town centers that blend live, work and play.
“We believe some, though certainly not all of the office demand, will follow this migration,” Paul Leonard, CoStar managing consultant, said on the webinar. “Studies show millennials value their time above most other things. A shorter commute time makes a compelling argument for the suburb,"
Leonard noted the trend could take some time to materialize since most millennials aren’t yet in positions of leadership.
Over the past decade, demand for urban office space has exceeded that of suburban offices, 55% to 45%. But Leonard said suburbs have been “punching above their weight class” by leasing space at outsize percentages compared to their roughly one-third share of the overall national office inventory.
Leonard identified the South and West as the prime suburban areas that could grow the quickest. The South really stands out, with Austin, Texas; Nashville, Tennessee; and Charlotte, North Carolina, offering very high density growth, he said.
If the migration in fact happens, the old rule that “retail follows rooftops” is likely to come into play as well.
That retail is likely to be made up of more than just shopping destinations.
Fitness centers and nontraditional tenants such as coworking, healthcare and event space represent growth areas for retail centers. Discount stores, service retail and grocery stores also are big in suburbia — so-called necessity retail that may be prove more resilient in a downturn.
Healthcare, too, could be strong in the suburbs, catering not just to millennials, but also baby boomers who are aging out of the workforce.