HOW DOES POPULATION GROWTH AFFECT COMMERCIAL REAL ESTATE?

The demographic changes of today present challenges for commercial real estate developers, but they also provide profitable opportunities to firms and businesses innovatively adapting the new demands. Commercial real estate development firms that gratify more modern lifestyles can make remarkable headways in today’s market.

 

Population does indeed have an impact on commercial real estate. Now the question is how does population affect commercial real estate. First off, it is important to understand Population and it’s growth.

 

Population growth refers to change in the size of a population, which can be either positive or negative over time, depending on the balance of births and deaths, immigration and emigration. Population growth (positive or negative) is caused exclusively by the operation of fertility, mortality, and migration. Regarding the population growth of countries and other national populations, the effect of migration is normally not as influential as the effects of fertility and mortality, usually considered to be the major factors directly causing national population growth.

 

The U.S. Population is approximately 334 million people and is projected to increase by 2,522,762 people and reach 337,550,940 by the beginning of 2023. About 11,500 babies are born each day in the United States of America (USA). If external migration remains at the previous year level, the population will be increased by 1,062,039 due to the migration reasons.

 

An increase in population of that magnitude puts severe pressure on an economy. Each country, city and state has its own economy, and if an economy is not growing at the same rate as the population, then it would evidently deteriorate. How this population growth is diffused will help determine how you find your best real estate deals.

Ultimately, vast development and transition in where we live and work create different needs in retail, industrial, office space and multifamily housing. Demographic trends and changes, if well understood, gives an avenue for healthy competition in the industry.

 

Today, the U.S. population is delaying marriage and childbirth, which reduces the demand for traditional family needs like the single-family home. In addition, technological advancements have had a significant impact on the commercial real estate industry in several ways. Various technological features and properties are thriving today as a result of the media convergence. These features like autonomous driving cars, Cell towers, etc creates a market in which people don’t need some pre-existing commercial real estate features like parking garages.

 

DEMOGRAPHIC CHANGES IMPACTING COMMERCIAL REAL ESTATE DEVELOPMENT

Aging Baby Boomers

Baby boomers are the generational cohort born after World War II. Also known simply as “boomers,” they are named after the unprecedented post-war spike in birth rates, referred to as the baby boom. Their generation was born between the end of WWII and the mid-1960s.

The baby boomers who were born between 1945 and 1964 are an example of a demographic trend with the potential to significantly influence the real estate market. The transition of these baby boomers to retirement is one of the more interesting generational trends in the last century, and the retirement of these baby boomers, which began back in 2010, is bound to be noticed in the market for decades to come.

Essentially, about 18% of the population will be looking for new activities to fill their days in the next 12 years. Commercial real estate opportunities for retired Baby Boomers, a generation of inactive and sedentary adults, includes exclusive apartment buildings with amenities relevant to attending physicians and bike racks that’s suitable for this class of people. It also veers towards Club Med-style communities with suitable wellness programs and fitness activities for them.

Growing Millennials

The millennial generation are approximately defined as those born in the 1980s and early 1990s, and they have a number of impacts on commercial development demands. Millennials are ending their leases, moving out and buying houses in larger numbers. In fact, they make up the fastest-growing segment of buyers today and they comprise the largest generation in the U.S. labor force.

Technology has become crucial to the home buying process. Utilizing the internet and mobile devices to find, view and buy homes has become the norm among millennials. 47% of Millennial homeowners live in the suburbs, as opposed to urban and rural areas. The preference for bigger, more updated houses could be a reason for this shift. Millennials are proving less interested in owning homes as they prefer the benefits of renting. 

Developers are now urged to offer ‘robot friendly’ homes. This includes less stairs and more wooden floors, as robots struggle with multiple stories and rough flooring. Investors should look into developing tech-ready houses so that buyers and tenants may choose to install their own devices. Simple improvements like a well-placed router and evenly spread-out plug points can add much value to a home.

Household Formations

The younger generation is renting longer, and homeownership is not as important to them. Previous generations viewed homeownership as a way to build stability, wealth and equity. The millennials saw many of their parents’ finances ruined because of homeownership, and they now proceed with caution. They are also getting married and having children later, and this tends to delay the move to purchase a home.

The Urban Land Institute predicts household formations will increase by 86 percent in the next decade to about 12.5 million households. Household formation trends should generate more retail exertion in the suburbs. Downtown and the suburbs are undergoing a rejuvenation.

New apartment complexes catering to the younger generation offer units that are smaller but in communities that are rich in amenities and high-tech features. They also include converting shopping malls into multipurpose facilities with both housing and retail, as consumers are advancing in their  preference for convenience over the traditional mall experience. Also with the younger generation’s preferred transportation options, they are less likely to demand commercial garages and parking lots.

 

Women in the Workforce

Emerging economies see a similar story, with women facing an imperative to transition away from stay-at-home mums or lower-wage occupations like agriculture into higher-wage occupations such as professional roles. They are part of today’s growing remote workforce, preferring flexibility in their schedules.

Given the rise of women in the workforce especially in administrative positions, there is a driving demand for flexible office space and suburban amenities. It is vital to develop the flexibility and mobility needed to negotiate labor-market transitions successfully; and the access to and knowledge of technology necessary to work with automated systems, including participating in its creation.

This entails that commercial developers need to redefine the office space and amenities in which they offer, stirring away from the traditional work space. Lately, companies are gearing toward offices with fewer square feet per employee, so smaller offices and shared working spaces are in higher demand.

 

Migration Toward the South

As defined by the U.S. federal government, the South includes Alabama, Arkansas, Delaware, the District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and West Virginia. Over the next decade, the southern regions are expected to draw 62 percent of the household growth in the U.S.

The South has more affordable housing markets, and is also attracting a younger demographic that will give rise to a higher demand for rental housing and townhomes. The South offers an environment known for its easy tax policy and more modified regulatory environment. Research shows that about 40% of the U.S. population lives in the South. Fundamentally, developers can expect a diminishing rate of demand in the North and Midwest as retiring Baby Boomers flock to the South.

 

 

In recent times, it may seem as though these demographic changes pose a threat to commercial developers’ traditional projects, but in reality they also create new ways for developers to profit and expand their horizon. By accommodating these changes, commercial real estate can develop more profitable opportunities.

 

As informed investors we should understand the risks associated with real estate investing and that  there is no  guarantee. Please do your due diligence.