CHICAGO—The improving jobs market has certainly allowed many experts and developers to feel even more optimistic about the prospects for commercial real estate in 2015. This includes the residential market, but changes are underway in the sector and will shape in the coming years how developers take advantage of the improving conditions.
Experts project, for example, that millennials will make up a third of the country's adult population by 2020, and residential developers have taken notice. But lingering economic troubles has caused young people to hold off on buying their first home. In fact, according to data from the US Census, the homeownership rate for those 35-and-under dropped to 35.9% in the second quarter of 2014, its lowest level in two decades, and held steady at 36% in the third quarter, meaning this group will drive demand for rental units in 2015.
“In downtown Chicago, the number of rental units absorbed in the first three quarters of 2014 was more than 50% higher than the total for all of 2013, indicating new units in the pipeline will be easily absorbed,” says Steve Fifield, president and founder of Fifield Companies. The firm will break ground in first quarter 2015 on Avant River North, a 306-unit tower in Chicago's River North neighborhood.
“Part of this increasing absorption is due to the changing pool of renters,” he adds. “In our developments, the median age of renters has increased from 26 to 32 years old because millennials are choosing to age in place as they postpone major milestones like marriage and homeownership.”
“In many parts of the country, the cost of renting vs. owning is even, but most millennials would rather spend their money on travel or entertainment than saving up for a down payment,” according to David Schwartz, co-founder and chief executive officer of Waterton Associates, a Chicago-based investment firm which has a portfolio with about 20,000 rental units across the US. “Plus, the vast majority of millennials certainly don't want to be saddled with home maintenance at this stage of their lives. Not until millennials start having families and their student loans are paid down will this group more seriously entertain buying.”
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