Shift to Cities Bodes Well for MF, Other Industries

SANTA MONICA, CA-As reverse migration from suburbs back into cities continues, it stands to reason that the multifamily construction sector will reap the benefits. However, a report from IBISWorld, based here, says that it's not only rental and condominium apartment builders that will gain from the urbanization trend over the next five years.

"As the US economy picks up during the next five years, both the rate of urbanization across the country and the per capita income of urban residents are expected to accelerate," according to the IBISWorld report, titled "Moving on up: Top industries to benefit from urbanization." Along with apartment construction, these shifts will lead to growing demand for testing and educational support, single location full-service restaurants, apartment rental, street vendors and public transportation.

Although operators in these industries are not anticipated to encounter a lack of demand in the next five years, "they are expected to face more intense competition among peers for market share within the rapidly growing urban markets," the report states. "The benefits of urbanization, though, will increase the number of workers and establishments operating in these industries."

Driving the demand apartment boom in part is the rapid growth of companies in the healthcare, technology and finance sectors. "These industries are attracting an increasing number of young professionals and college graduates, a demographic that has boosted the population of urban areas," according to the report.

Accordingly, IBISWorld expects revenue for the apartment and condominium construction industry to increase at an annualized rate of 3.7% in the five years to '19. Profit margins for the rental industry have lagged the 9.1% annualized growth seen by the construction sector since 2009, though, and will continue to lag over the next five years, albeit not quite as dramatically: 2.5% annual growth, compared to 3.7% for builders.

For companies in the testing and educational support sector, the growth story will be more bullish in the next five years than it was over the preceding five. Where the preceding five years have seen annualized revenue growth of 3.4%, IBISWorld is projecting total revenue for the education industry to increase at an average annual rate of 4.1% as the numbers of inhabitants in urban areas spike and stimulate increased spending. "Moreover, metropolitan areas are generally trendsetters for educational programs, providing stable demand for educational consultants," the report states.

Single-location, full-service restaurants are more apt to be concentrated in cities due to their greater population density. IBISWorld foresees annual growth of 3.1% for operators in this sector. For street vendors, annualized revenue growth of 5% is projected, although the sector's low barriers to entry mean increasing competition.

At both state and federal levels, funding has been directed to bolster mass transit in the past few years, and IBISWorld expects this to continue. "Highlighting the crucial need for public transportation, the Metropolitan Transportation Infrastructure Survey, conducted for the United States Conference of Mayors, illustrates that more than 40% of all mayors surveyed across the US highlighted the need to grow public transit, rather than allocate the bulk of resources for maintenance projects," the report states. "Therefore, IBISWorld expects total Public Transportation industry revenue to grow at an average annual rate of 2.9%" over the next five years.