In this video update Guy Barnard, Tim Gibson and Greg Kuhl from the Global Property Equities Team explain that, as baby boomers retire and millennials enter the workforce, their changing housing needs and preferences are creating opportunities for companies to meet the demands of these growing population segments.
- Demographics are a key driver of supply and demand in real estate
- Retiring baby boomers are seeking more affordable, lower maintenance housing, while millennials remain more inclined to rent instead of buy
- Real estate companies are shifting their business models to adapt to the changing demands of these population segments, creating new investment opportunities for investors
Greg Kuhl: As investors in the real estate sector, we tend to be very focused on trying to understand supply and demand and identifying areas within real estate where those two factors are aligned in favour of real estate owners. For us, one key driver of demand is demographics. We see the changing demographics today are altering the needs for and uses of real estate. A couple of areas that we are specifically focused on today with demographics would be ageing baby boomers, who are entering their earlier retirement years, and also millennials, who are today very much in the workforce and also starting to have children in larger numbers.
Tim Gibson: Over the next 25 years, the global population of people aged 65 and older will double to almost 1.3 billion.1 This has become such an issue today and in the future that in 2015, China actually relaxed its well-known one-child policy. From a real estate perspective, building the right type of product to match the needs of this ageing population will be the challenge.
Kuhl: In the US, for example, we have 10,000 people turning 65 every day and that will continue through 20302. So there is a very long tailwind of these younger retirees that want an option for their early years of retirement and a place to live.
The area within real estate that we think is best positioned to benefit from baby boomers today is age-restricted manufactured housing. There tends to be some misconceptions around exactly what is a manufactured housing community. These are communities that have a lot of amenities, including golf courses, clubhouses, swimming pools, pickle ball courts, and they organise a lot of activities for their residents. They tend to be places that younger retirees really enjoy living, and they also tend to be affordable, which is crucially important, as we note that many retirees may not have saved as much as they would have liked for retirement.
There is also very little supply being developed of these manufactured housing communities. It tends to be a property type that is difficult to obtain zoning for, and there tends to be in some cases pushback from local municipalities because of this misconception about what they actually are. The result is that we see this as a sector that has tremendous demand and very limited supply.
Guy Barnard: Millennials will account for more than 50% of the US workforce within the next two years3. This generation, who have grown up with smartphones, are consuming a wide range of goods and services in a very different way from those previously. Clearly, we see this in the retail sector, where the growth of e-commerce is putting pressure on the physical retail stores. But more broadly, 'generation rent' are seeking much greater flexibility in many aspects of their life.
In the real estate market, we see this in decreased home ownership rates and much greater demand for professionally managed rental apartments in most of our key global cities. But we also see it in the office space sector where millennials and younger companies are seeking much greater flexibility and a very different work environment. Ultimately, we think office landlords will have to adapt and evolve, embrace the fact lease lengths are getting shorter, and have a much more service-orientated approach to how they manage their real estate.
Gibson: There will of course be winners and losers, so the need for us is to be selective and to monitor these trends going forward. It may surprise many people to know that over the last couple of decades, Tokyo’s population growth has outpaced that of New York as young people flock from suburban areas. In the US over the last decade, the larger shifts have actually been away from major coastal cities like New York and LA, but also Chicago. Interestingly, this is true both for young people, so those in the 25-to 34-year-old age bracket, and those aged 55 and above. Younger people have been moving out of these cities because they have become too expensive and moving to cities like Houston, Denver and Seattle. Older people have moved, again, away from these cities and into cities such as Phoenix and Tampa over the last ten years.
Barnard: So when we’re looking at companies today, we’re really looking for the best assets and the best locations that we think will be the most resilient, but we’re also spending a lot of time in management teams, understanding if their business model is adapting to this changing backdrop.
1Source: United Nations Population Division 2019.
2Source: Pew Research Center; US population projections 2005 to 2050.
3Source: US Bureau of Labor Statistics, 2013.