The Demographics of Real Estate Investments

Summary

Jeremy 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

00:00

📊 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.

05:02

👶 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.

10:04

🏡 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.

Keywords

💡Commercial Real Estate

Commercial real estate refers to property used solely for business purposes, including income-generating properties like apartments, industrial, retail, and office spaces. In the video, it is the main focus of the presentation, with the speaker discussing its performance through the NPI, which is a measure of investment performance across a wide range of these properties.

💡NPI (Nationwide Property Index)

The NPI is a composite index that tracks the performance of commercial real estate investments in the private market. It is mentioned in the script as the primary metric for understanding the health and trends within the commercial real estate sector.

💡Millennial Generation

The millennial generation, born between the early 1980s and late 1990s, is a significant demographic group that is shaping various aspects of the economy, including real estate. The video discusses their impact on real estate investments, highlighting their preferences and behaviors.

💡Demographics

Demographics refers to the statistical study of populations based on factors such as age, sex, and race. In the context of the video, demographic trends, especially those related to the millennial generation, are a major influence on real estate investment opportunities and market dynamics.

💡Homeownership Rate

The homeownership rate is the percentage of households that own their homes. The script mentions that this rate is currently at historical lows, which is attributed to millennials delaying traditional milestones such as marriage and buying a home, favoring the rental market instead.

💡E-commerce

E-commerce refers to the buying and selling of goods and services over the internet. The video discusses how the rise of e-commerce, driven by millennials' shopping habits, has increased the demand for industrial properties closer to densely populated areas for faster delivery.

💡Walkability

Walkability is a measure of how friendly an area is to walking, often associated with urban planning and mixed-use neighborhoods. The script indicates that millennials value walkability, which influences their residential choices and the demand for certain types of real estate.

💡Student Debt

Student debt refers to the money owed by students who have taken out loans for their education. The video mentions that while student debt is often cited as a barrier to homeownership among millennials, the script suggests that the media may have overstated its impact, as nearly half of millennials have no student debt.

💡Experiential Services

Experiential services are services that provide a memorable or engaging experience to the consumer, such as dining out or attending events. The video notes that millennials are more inclined to spend money on these types of services, which has implications for the retail sector.

💡Suburban Migration

Suburban migration in the context of the video refers to the trend of companies moving their offices from suburban areas to central business districts. This is driven by the desire to be closer to talent and is a significant trend affecting the office real estate sector.

💡Risk-Adjusted Returns

Risk-adjusted returns are the returns on an investment adjusted for the risk undertaken. The video concludes by emphasizing the importance of a diversified investment approach across different real estate sectors to achieve the best risk-adjusted returns, especially considering the influence of the millennial generation.

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]