NEW YORK–As Millennials settle into their 20s and 30s they are in search of affordable, yet established tech hubs to which to relocate. Several areas of the US stand to benefit from this generation’s search for home, according to new research from TH Real Estate, an affiliate of Nuveen (the investment manager of TIAA). At the same time, commercial real estate investment trends will be affected as well, depending on the lifestyle choices that each area offers. To give one example, many of the areas that TH Real Estate predicts will attract more Millennials are relatively affordable with higher home ownership rates. “Multifamily opportunities, particularly among higher-end luxury properties will be more limited,” it said in its report. There will be exceptions of course, such as in Atlanta, Austin and Dallas, where Millennials are more likely to rent.
So what are Millennials in search of, generally? Affordable mid-sized tech hub cities, select city-center neighborhoods and close-in big city suburbs that offer short commutes and urban amenities, according to TH Real Estate.
TH Real Estate groups these cities into three categories.
The “flight to suburb metros” are in such cities as San Francisco, Los Angeles and New York. These areas will attract primarily older Millennials looking to establish households; they will want to stay close to urban centers, preferring areas with short commutes and urban amenities, according to TH Real Estate. This group will potentially give a boost to suburban office properties and well-located lifestyle shopping centers.
“Millennial Magnets” such as Chicago, Salt Lake City, Phoenix, Austin, Orlando, Charleston and Raleigh will be the preference of younger Millennials, who want to work in the technology sector, and in communities with a lower cost of living compared to other big cities.
This will create attractive investment opportunities for select multi-family properties, particularly in emerging and redeveloping urban neighborhoods, as well as in certain office nodes and shopping centers, TH Real Estate said. For example, the report noted that the “traditional car-dependent suburban tech cluster of Research Triangle Park in Raleigh/ Durham …is slated to undergo a redevelopment into an urbanized science park…”
As part of this category, TH Real Estate said there were a few “wild card contenders” where the share of tech employment was below the national average of 4.9%, but growth has been strong. These cities include Pittsburgh, whose economy is driven by the education, medical and research synergies of Carnegie Mellon and the University of Pittsburgh Medical Center; Orlando, which is driven by entertainment and hospitality; Charlotte, whose competitive advantage is in the banking industry; Charleston, which is becoming known as Silicon Harbor; and Las Vegas, which screened well for overall job prospects.
“Tech Super Hubs” such as Boston, Denver, Seattle, Portland and Washington, DC will continue to attract Millennials as well. Here, the high cost of living will continue to provide a tailwind to city center multifamily properties, select office submarkets and high street retail neighborhoods in the urban core of these hub cities, TH Real Estate said.
The firm choose these cities — a list from which San Francisco and San Jose are noticeably absent — because they have above average share of, and favorable growth expectations for, tech-based employment. “We expect the stronger tech-related job growth [in these cities] relative to other tech super-hubs to continue to attract the young Millennial population,” the report said.
TH Real Estate concludes with a reminder that Generation Z is not that far behind.
Research on this generation is only just beginning, but indications of divergent preferences as compared to Millennials are emerging, which will further impact commercial real estate as soon as five years from now when the youngest leave college and begin entering the workforce.