The Demographics of Real Estate Investments
Summary
TLDRJeremy Zarin, a senior real assets analyst at Marquette Associates, discusses the impact of Millennials on real estate investments. Instead of traditional factors like cap rates, Zarin highlights demographic trends. With 80 million Millennials, this diverse, tech-savvy generation influences housing, income, employment, and more. The presentation covers how Millennials' preferences and behaviors affect the four main real estate sectors: apartments, industrial, retail, and office. From renting trends to e-commerce growth, Zarin underscores the significant role Millennials play in shaping the future of real estate investments.
Takeaways
- 📊 The NPI (NACREIF Property Index) is a composite of real estate investment performance from a large pool of commercial properties in the private market.
- 🏢 The four main property sectors in the NPI are apartments, industrial, retail, and office, which are the focus of the presentation.
- 👥 Millennials, born between the early 1980s and late 1990s, are nearly 80 million strong and are having a significant impact on real estate investments.
- 🏙️ Millennials prefer urban living, public transportation, and walkable neighborhoods, influencing demand for rental properties and multifamily housing.
- 💰 Lower incomes and higher student debt are affecting Millennials' ability to buy homes, but many express a desire to own in the future.
- 🛒 E-commerce growth is driving demand for industrial real estate, with companies like Amazon seeking locations close to high-density areas for faster delivery.
- 🛍️ Brick-and-mortar retail is declining, while experiential services and e-commerce resistant formats like groceries and fitness centers are thriving.
- 🏠 Homeownership rates are at historic lows, with Millennials delaying buying homes and instead renting for longer periods.
- 🏢 Companies are moving offices from suburbs to central business districts to attract Millennial talent, leading to suburban migration trends in the office sector.
- 🔮 Millennials' preferences and demographic trends will continue to shape real estate investment opportunities across all sectors for the next 50 years.
Q & A
Who is Jeremy Zarin and what is his role?
-Jeremy Zarin is the senior real assets analyst at Marquette Associates. He discusses the impact of the millennial generation on real estate investments.
What is the NPI and its significance in commercial real estate?
-The NPI, or the Nareit Property Index, is a composite of real estate investment performance from a large pool of individual commercial real estate properties. It is significant as it represents investment performance across various property sectors, primarily apartments, industrial, retail, and office.
Why is the millennial generation important in the context of real estate investments?
-The millennial generation is important because they are the largest generation in American history and their preferences and behaviors significantly influence the demand and trends in the real estate market.
What are some key characteristics of the millennial generation that impact real estate?
-Key characteristics include cultural diversity, gender balance, technology savviness, preference for urban living, a focus on work-life balance, environmental consciousness, and mobility, which all influence their housing choices and real estate market trends.
How does the millennial generation's housing situation differ from previous generations?
-More than 3/4 of millennials live on their own, with 26% owning and 50% renting. However, a significant portion still lives with their parents, and their current homeownership rate is relatively low compared to previous generations.
What is the current employment status among millennials?
-62% of millennials work full-time, 15% work part-time, and 9% are in school, interning, or volunteering. They are expected to represent about 75% of the workforce by 2030.
How does the millennial generation view work-life balance and efficiency?
-Millennials value work-life balance and are efficient workers. They are willing to work long hours on projects but dislike waiting for data and prefer not to waste time.
What is the current state of student debt among millennials and its impact on homeownership?
-Nearly half of millennials have no student debt, with 38% never having had it and 10% having repaid it. While student debt is significant for some, it appears to be less of a deterrent to homeownership than widely reported.
How is the millennial generation influencing the apartment and multifamily sector?
-The delay in significant life milestones such as marriage and home buying by millennials has led to increased demand for renting, making the multifamily and apartment sector favorable.
What impact does the growth of e-commerce have on the industrial sector from a real estate perspective?
-The growth of e-commerce is driving demand for industrial buildings closer to high-density populated areas for faster shipping, leading to an increase in the square footage of fulfillment centers.
How are millennials changing the retail sector?
-Millennials are shifting spending from traditional brick-and-mortar stores to service-oriented retail and e-commerce resistant formats like perishable goods and essential services.
What is the trend in the office sector related to millennials?
-There is a trend of suburban migration, with companies relocating from the suburbs to central business districts to be closer to talent, benefiting areas with good transportation networks and proximity to train stations.
What does the future hold for real estate investing considering the millennial generation's impact?
-The millennial generation's dominance and preferences will continue to shape the real estate market, with a diversified investment approach across apartment, industrial, retail, and office sectors potentially offering the best risk-adjusted returns.
Outlines
📊 Introduction to Real Estate Demographics and Millennials
Jeremy Zarin, senior real assets analyst at Marquette Associates, introduces a presentation on real estate with a focus on demographics, particularly the millennial generation, rather than traditional factors like cap rates and NOI growth. He discusses the importance of understanding commercial real estate in the context of indices like the NCREIF Property Index (NPI), which tracks investment performance across various property sectors such as apartments, industrial, retail, and office. Zarin emphasizes the significant impact of demographic trends, especially those related to millennials, on real estate investments.
👶 Millennial Characteristics and Real Estate Implications
Millennials, numbering nearly 80 million Americans born between the early 1980s and late 1990s, are highlighted for their diverse and unique traits. They are culturally diverse, technology-savvy, and prefer urban living with a strong focus on work-life balance and green initiatives. These characteristics influence their housing, income, employment, and lifestyle choices. Despite lower homeownership rates currently, many millennials express a desire to own homes eventually. Their employment trends, with shorter job tenures and efficiency in work habits, also have implications for the real estate market.
🏡 Millennial Housing Trends and Economic Factors
Millennial housing preferences show that while a significant portion rent or live with parents, many aspire to homeownership. Their varied incomes and lower employment levels compared to previous generations affect their purchasing power. Millennials represent a large portion of the workforce, with many working full-time or part-time and some still in school or volunteering. The generation's preferences for urban living and walkable neighborhoods, along with significant student debt for some, shape their housing and economic behaviors.
Mindmap
Keywords
💡Commercial Real Estate
💡NPI (Nationwide Property Index)
💡Millennial Generation
💡Demographics
💡Homeownership Rate
💡E-commerce
💡Walkability
💡Student Debt
💡Experiential Services
💡Suburban Migration
💡Risk-Adjusted Returns
Highlights
Jeremy Zarin discusses the impact of the millennial generation on real estate investments.
Traditional factors like cap rates and NOI growth are set aside for a focus on demographics.
The NPI (Nareit Property Index) is introduced as a composite of real estate investment performance.
Millennials, born between the early 1980s and late 1990s, are a diverse and tech-savvy generation.
Millennials are characterized by their preference for urban living, public transportation, and a work-life balance.
Over 75% of Millennials live independently, with varying degrees of homeownership and renting.
Income disparities among Millennials are noted, with a significant portion earning less than $25,000 annually.
Millennials have a shorter job tenure and are more efficient, often willing to work long hours when necessary.
Only 37% of Millennials identify as city dwellers, but nearly half live within central city boundaries.
Student debt is highlighted as a potential deterrent to homeownership among Millennials.
The multifamily and apartment sector benefits from Millennials' current reluctance to buy homes.
E-commerce's growth is driving demand for industrial buildings in densely populated areas.
Amazon's expansion in fulfillment centers exemplifies the industrial sector's adaptation to e-commerce and Millennial demographics.
Brick-and-mortar retail is challenged by internet retail and shifting age demographics.
Millennials prefer experiential services and电商-resistant formats, impacting the retail sector.
Office sector sees a trend of companies moving from suburbs to central business districts to attract talent.
Millennials' influence on real estate is expected to be significant due to their size and spending power.
Investment strategies should consider Millennials' preferences for urban living, e-commerce, and experiential retail.
Transcripts
[Music]
hello everybody my name is Jeremy Zarin
and I'm the senior real assets analyst
at Marquette associates and today I'm
here to talk to you about real estates
but instead of covering the traditional
fundamental factors such as cap rates
and Noi growth I'm here today to talk
about demographics it's just and
specifically the millennial generation
and their impact on real estate
investments but before jumping in the
demographic talk let's start with a
quick overview of commercial real estate
when we talk about commercial real
estate with our clients we think about
it in the context of both the knackery
Odyssey and the nake reef property index
or NPI for short the NPI is a composite
of real estate investment performance
from a very large pool of individual
commercial real estate properties
acquired in the private market for
investment purposes only the NPI invests
in real estate across various property
sectors as you can see from the pie
chart and the majority of which is
invested across apartments industrial
retail and office since these four
represent the majority of the mpi this
is what I'm going to focus my attention
on throughout the remainder of the
presentation and as I mentioned earlier
rather than talk about the traditional
fundamental factors driving real estate
returns one of the major themes driving
investment opportunities within real
estate has been the demographic trends
in the Millennial Generation so who are
these Millennials and why do they matter
Millennials some of you in the room
might know millennial you might be
related to a millennial you might be
sitting next to a millennial or even be
a millennial in fact you might even be
looking at one right now there are
nearly 80 million Americans considered
millenials born sometime between the
early 1980s and late 1990s and today
they're turning around 20 to 36 years
old Millennials aren't just the next
generation after generation X and the
baby boomers instead Millennials are
pretty impressive group of people let me
explain what I mean
Millennials are culturally diverse and
gender-balanced technology and people
savvy more likely to use public
transportation prefer urban
and pedestrian culture a work-life
balance is paramount green is good and
they are mobile and more willing to
relocate so let's take it a few steps
further by exploring their housing
income employment self-image and student
debt in the following slides
starting with housing more than 3/4
Millennials live on their own including
the 26% who own and 50% who've rent and
over one-fifth live at home with their
parents just like Will Ferrell and John
Rowley did the movie Step Brothers while
a percentage of Millennials that own is
relatively low right now I would expect
that to change because even though most
Millennials currently prancer live at
home most of them actually express
interest that they want to own and be
homeowners but the situation just isn't
right right now moving onto income
incomes vary widely among Millennials 14
percent of Millennials who work
full-time make less than $25,000 a year
and only 20 percent earn more than 75
thousand lower employment levels and
smaller incomes have left a younger
Millennials with less money than
previous generations with respect to
employment status among Millennials 62
percent work full-time 15 percent work
part-time and 9 percent are in school
interning are volunteering since
Millennials represent the largest
generation in the workforce and are
expected to represent roughly 75 percent
by 2030 there are a couple things I
think you should know about us first off
the average millennial tenure at a job
is about two years compared to five
years for Generation X and seven years
for the baby boomers so if you aren't
willing to let them grow they're gonna
see growth somewhere else secondly
despite what you baby boomers in the
audience may think we are not lazy
it's called being efficient
Millennials have no problem working long
hours on projects that require
additional time and attention but they
dish they just don't like sitting around
waiting for the data and when they know
the work was on two hours ago with
respect to self-image interestingly only
37% identify themselves as city people
but almost half live within central city
boundaries as the chart on the right
hand side illustrates most Millennials
live in city neighborhoods outside the
actual downtown area where only 13% of
Millennials live when you look at where
Millennials actually live the downtown
errs are clearly atypical instead many
Millennials live in central cities but
not necessarily downtown Millennials
value walkability mixed-use
neighborhoods and gravitate towards
denser settings rather than outlying
suburbs and finally student debt because
no conversation about Millennials can go
without talking about it student debt
has been widely characterized by the
media as one of the most significant
deterrents to homeownership among
Millennials although very significant
for some what the media has report it
looks to be a little bit overstated now
nearly half of Millennials have no
student debt at all 38% never had it and
10% already repaid it of those with
outstanding balances shown in the pie
chart on the right nearly half are
carrying less than $25,000 so now that
everyone is an expert on the Millennial
Generation let's dive right in and take
a look at how Millennials are impacting
the four main real estate sectors
apartments industrial retail and office
from a demographics perspective starting
with the multifamily and apartment
sector so home ownership is currently at
historical lows around 64 percent from a
demographics perspective Millennials are
delaying significant milestones such as
marriage having children and of course
buying a home all of which however has
been very favorable to the renting and
overall multifamily and apartment sector
new renters and new owners on the graph
represent the change in renters and
owners from the previous year over the
past several years there has been a
significant increase in new renters
relative to new owners as Millennials
half enter their peak home buying years
the reluctance to enter the housing
market could change the cohorts sheer
size pluses plus its desire to settle
down in the future could lead to a surge
in home prices for the near term however
there are significant amount of
Millennials still in school or about to
enter the workforce and as a result
demand for apartments and multi-family
remains strong
adding to the previous slide where I
showed home ownership rate as an overall
percentage you could see from this graph
that the percentage change in home
ownership among Millennials and people
between the ages of 35 and 44 has been
on a significant decline relative to all
age groups combined and since peaking
before the financial crisis so why does
this matter
well the Millennial Generation is the
biggest in US history even better than
the baby boomers and by the year 2050
Millennials in the generation after are
going to represent the majority of the
u.s. population when you think about it
because Millennial Generation is the
largest in US history as they reach
their prime working and spending years
their impact on the economy is going to
be as our presidential candidate Donald
Trump Donald Trump would say huge huge
moving on to industrial a major theme
with an industrial sector has been the
story of e-commerce as it continues to
gain market share from the core retail
sales as shown on the graph when
Millennials order online they expect to
have it shipped to them within 24 to 48
hours because of this and the increase
in e-commerce sales overall companies
are looking to buy or lease industrial
buildings closer to higher density
populated areas rather than in the
middle of nowhere this slide shows a
picture of one of Amazon's fulfillment
centers Amazon is a great example of the
industrial sector as it relates to the
increased demand in e-commerce and the
changing demographics of Millennials
from drones to moving closer to higher
density populated areas Amazon has
increased its square footage on
fulfillment centers data centers and
other industrial space from 44 thousand
square feet in 2005 to over 120 thousand
square feet in 2015 an example of this
trend was this past June when
announced plans to open to fulfillment
centers and one in our two in
Edwardsville Illinois an additional
fulfillment center in Joliet as you
could see in the map on the right both
of which offer premiere locations and
transportation networks for the company
so while ecommerce is driving
performance within the industrial sector
and likely a major attributer going
forward over building and monitoring
supply levels in certain areas will be
something to keep an eye on moving on
the retail brick-and-mortar sales are
being constrained by Internet retail and
the shifting age demographics
brick-and-mortar as a percentage of
expenditures has gone down while
services have gone up a recent example
this trend is an announcement made by
Macy's this past June in our in August
to close 100 of its stores and buyer
Lisa 2017 which represents about 15% of
all of its department stores so what
types of services are millenials
spending their money on
well millenials want to spend money on
something that will give them a good
experience so experiential services such
as restaurants and bars those are areas
that have shown significant strength
also ecommerce resistance formats mainly
perishable goods and essential services
such as grocery personal care and the
fitness centers such as maybe you've
heard of it core power yoga Orangetheory
fitness these have shown been very
popular and have a lot of high leasing
trends in the sector going forward and
improvement in the labor market
broadening wage growth lower gas prices
and rising consumer to consumer
competence should lead to continued
strength in the retail sector
specifically around ecommerce formats
and select brick-and-mortar stores and
lastly we have the office sector office
can best be characterized with the trend
known as suburban migration companies
are relocating from the suburbs to
central business districts in order to
be closer to the talent in Chicago the
West Loop is benefited the most from
suburban migration accounting for 65% in
over 3 million square feet of migration
leases the proximity to train stations
and the interstate make it a premier
location for companies relocating to the
CBD that still have a sizeable share
suburban employees commuting to work two
recent examples of new leases from the
move to the West Loop are the Google
building on the Left which recently
moved its headquarters from River north
to the Fulton Market area and the
rendering of McDonald's on the right
which just contracted on the old Harpo
Studios where the Oprah Winfrey Show is
produced in the near term to lead supply
and select markets should allow for
continued occupancy and rent gains
however oversupply is already at risk in
some key office locations being
selective and focusing on highly
walkable locations with convenient
transit access will be critical proceed
with caution here so what does this all
mean for us in the future of real estate
investing first and foremost it is
important to remember that the
millennial generation is the most
dominant generation in American history
and the most dominant demographic for
the next 50 years I think we can all now
agree that we're a pretty impressive set
of people in regards to the four main
real estate sectors though homeownership
rate is at all-time lows partially due
to Millennials starting a family and
renting for love starting a family later
and renting for longer as a result
demand for apartments and multi-family
remains strong especially as younger
Millennials enter the workforce with
regards within the industrial sector
companies are seeking industrial
buildings closer to high population
density areas seeking premiere locations
and transportation networks to meet the
demand and a faster leasing and the
growth within e-commerce with in retail
consumer spending has shifted away from
the traditional brick-and-mortar
benefitting service oriented retail and
within the office sector companies are
migrating their office buildings away
from the suburbs and into the cities and
leading to new development opportunities
in select markets so while we are seeing
shifting transcripting Trane's occur
within each of the four main real estate
sectors our diversified investment
approach across all four may provide
investors with the best risk adjusted
returns Millennials are changing the way
businesses think and how real estate
investors invest in the future thank you
[Applause]
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