At-a-Glance: Key Takeaways on Real Estate Investing & Market Dynamics
- Shifting Supply/Demand Dynamics – The growing U.S. population combined with continued migration patterns, with continued movement to the Sunbelt region and net migration losses from other regions (the Northeast, Midwest, and West) – are creating regional opportunities.
- Demographic Trends Creating Opportunities – Demographic trends, including a growing preference to “age in place” among individuals turning 65 over the next decade, create real estate investment opportunities in the U.S. and abroad, particularly in markets with strong demand drivers.
- U.S. Residential Market Strengths –Favorable fundamental drivers within the U.S. residential markets over time, include: (i) near record low levels of for-sale inventories, (ii) near record high demand for affordable product, and (iii) cost pressures leaving more-efficient industry participants gaining further market share.
According to the U.S. Census Bureau's 2024 Population Estimates, the U.S. population has now surpassed 340 million having increased by 1.0% during the year—partly due to an increase in net international migration, as well as a rebound in natural increases (births minus deaths). Underneath the surface though, another shift was evident. That is, the continued movement to the Sunbelt region as more than 400,000 net residents relocated to the U.S. South, with the other three regions reporting net migration losses in the year (the Northeast, Midwest, and West).
Alongside these migration patterns, there seem to be certain demographic trends unfolding, including the divergence of growth rates between various age brackets (or cohorts). For instance, the U.S. population is only expected to increase by 0.2% per year through 2030 due to an expected moderation in international migration. However, the 20-to-34-year-old bracket is expected to decline by 500,000 or 0.1% per year through 2030. On the other hand, the 35-to-49-year-old bracket is expected to expand by 1.3% per year through the end of the decade and exceed 70 million in total. Furthermore, the 65+ age bracket is projected to increase by 2.4% per year through 2030—the most rapid growth rate amongst cohorts.
Due to these evolving migration and demographic patterns, we believe there are likely to be major implications for demand drivers in the U.S. residential markets through the end of the decade, including:
1. More tepid fundamentals for multi-family: The expected decline in the 20-to-34-year-old age bracket will seemingly create a more challenging demand backdrop for apartment owners since this cohort has the highest disposition to rent versus own given their stage in life. As a result, rental-rates for multi-family properties may be more likely to track nominal wage rates on a national basis, as opposed to the outsized growth experienced in the decade following the Global Financial Crisis (“GFC”).
2. Structural demand for single-family housing: As the largest cohort in U.S. history (“the millennials”) continues to progress into the 35-to-49-year-old bracket, there is likely to be outsized demand for single-family housing. In fact, the propensity to own a home is nearly 80% higher during this stage of life than in prior years. Further, single-family rentals (“SFR”) continue to gain acceptance in the “sharing economy” and account for nearly 15% of new home starts in major markets throughout the Sunbelt.
3. A secular change in demand for “active adult” product: For the next 10 years, it is estimated that 1.5 million people will turn 65 each year in the U.S. with more than 85% in this cohort indicating they would prefer to “age in place” per the AARP. Such inclinations are likely to lead to a “step change” in demand for a host of offerings— including “active adult” communities. These residential areas are restricted to a sub-set of buyers (e.g., 55+) and designed to provide interactive and maintenance-free lifestyles, with more independence than traditional senior housing, and often in warmer climates.
We see several favorable fundamental drivers within the U.S. residential markets over time, including: (i) near record low levels of for-sale inventories, (ii) near record high demand for affordable product, and (iii) cost pressures leaving more-efficient industry participants gaining further market share.
We also see opportunity in select pockets of Commercial Real Estate, including enterprises that concentrate on (i) property types with structural demand drivers and limited “capex” or else (ii) real estate services that are less “capital intensive” with a focus on brokerage, property management, and other advisory activities with prospects to earn “higher returns on capital” over time.
Demographic tailwinds extend beyond the U.S. residential markets, however, and offer investors the closest equivalent to a “free lunch” in the real estate space. They also serve the U.K. student-housing sector quite favorably when considering that the number of 18-year-olds (a proxy for those entering college) is projected to increase by more than 2.0% per year through 2030, without factoring in any further gains in international applications.
We believe international opportunities exist with businesses that are largely focused on the same types of residential and commercial activities outlined above, with leading platforms in their respective regions in developed markets where we believe there are (i) adequate disclosures and securities laws as well as (ii) ample opportunities for resource conversion and change of control transactions (e.g., the U.K., Australia, France, and Hong Kong).