“Millennials not buying homes” has become an almost trite statement, signaling a major shift in generational investment preferences. Their lived experience and current situation defend that position, and it’s important to recognize the opportunity that a generation that may be more willing to rent indefinitely presents for developers and investors.
Millennials came of age during the 2008 housing bubble and understand the ramifications of buying expensive homes with little money down. They are often saddled with student loan debt that makes saving for a down payment more challenging. [1] They are also starting families later and enjoy the geographic flexibility and sense of adventure that remote work enables. [2]
In addition, their needs are starting to change. In a transition highlighted by the flight from urban centers during the pandemic, it’s clear that millennials are ready to trade some of the convenience of urban core for the lower cost of living, larger and greener spaces, and financial flexibility of life in suburbia. For many, the exorbitant prices per square foot to live near closed shops, restaurants, and bars while working from home is less attractive.
These shifts emphasize real estate developers’ and investors’ opportunities to diversify their portfolios with suburban rental properties. Let’s dig into the rationale further and then explore how to find opportunities.
Renting rather than owning
60% of workers started permanently working from home during the pandemic, compared to only 7% before the pandemic. [3] By eliminating their commute, a major reason to live in the city – to be close to work and save time – evaporated for many millennials. What’s more, many white-collar employers are also finding financial benefits from maintaining a reduced commercial real estate expense once the pandemic ends.
At the same time, the percentage of millennials who plan to rent indefinitely is increasing. [4] Suburban rental properties will likely be a big beneficiary of the intersection of these two influential trends. And as developers focus on catering to this new wave of residents, even more urban millennials can find value in moving to a long-term, spacious, and more affordable rental property in suburbia.
The question becomes, what does this customer base entering the prime of their earning years want in a suburban rental property?
City life without being in the city
As much as millennials may not want to admit it, their lifestyle preferences are starting to resemble that of their parents in many cases. And just like empty nesters finding a sweet-spot living situation in semi-urban environments with direct access to big cities, millennials are finding these lifestyle changes suit their preferences too.
In New Jersey, for example, new developments in Jersey City, Bayonne, and Montclair promise convenient access to stores and services for everyday needs, plus plenty of entertainment options for date nights, get-togethers, and leisure activities such as golf or shopping. Millennials moving to Hipsturbia areas are attracted to these walkable suburban towns with great culture and cuisine. They’re realizing that they can replicate most of their favorite city experiences in a more familial, spacious, and affordable environment [5].
With the ability to lease ground-floor space to businesses that cater to millennial residents’ preferences – such as bars, restaurants, and entertainment venues – these suburban developments can often be even more convenient and complete than a comparative urban block. They add a sense of community that cities can struggle to deliver while maintaining the energy and socialization millennials crave. Plus, when the night calls for something more adventurous, the city center is only a short drive or train ride away.
Amenity packages increase appeal and drive greater rents.
While city properties offer millennials smaller apartments with more amenities than they once did, developers and investors can attract more residents in the same limited square footage.
On the other hand, suburban properties don’t have the same square footage restrictions, and developers can offer a much larger footprint with the same or more significant amenities at a lower price.
Full-size parking garages, swimming pools and gyms, private outdoor courtyards, and other convenience-oriented affordable amenities become possible in these environments. And just like in cities, builders are using smart home technology to appeal to tech-savvy millennial renters.
By turning the suburbs into a more spacious, affordable, tech-ready, and convenient alternative to city center living, developers can appeal to this seasoned and eager demographic.
Ready to take advantage?
If you’re an investor looking for an opportunity in the suburban rental boom, check out some of our ongoing multi-family developments, and reach out to learn how to get involved with similar projects in the future.
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SOURCES
[1] (Friedman, Forbes, 2020)
[2] (Mauro, Aleteia, 2020)
[3] (Kennedy, Chicago Agent Magazine, 2020)
[4] (Warnock, Apartment List, 2019)
[5] (Vozza, Forbes, 2019)