There is no question that location has long been a primary driver of property value. When it comes to millenial and Gen Z renters, this has never been more true. Compared to Gen X and Baby Boomer generations, younger individuals and families tend to have somewhat different demands when it comes to choosing a place to live. Whereas property value, square footage, and affordability were primary drivers of the past, younger renters are more willing to pay a premium for location, convenience, and amenities.
This trend has already altered the residential and commercial real estate landscape in many major markets. Today, we will explore why younger renters tend to shop for location, other rental trends, and how these trends look to continue or slow down moving into 2020 and beyond.
Location, Location, Location
You have probably heard that young adults have been flocking to urban apartments and homes in record numbers. This is certainly true, but not necessarily for the reasons you might have assumed. The reality is that suburban life was the typical American dream for decades because it was the most practical and affordable for most Americans. In the current economic environment where student debt and stagnant wages are stifling young adults, affordability and convenience are still huge factors when it comes to young renters settling on a home. One small example of this is how few young adults choose to own cars compared to prior generations.
Here are a few location factors that young renters look for when searching for an apartment:
- Commute length and cost to work and/or school.
- Access to public transportation such as bus lines, trains, and subways. These two obviously go hand in hand and are tied into the trend of young adults relying on mass transportation over their own car.
- Local amenities such as nightlife, entertainment, shopping, grocery store convenience, etc.
- Convenience to friends and family members. This is another obvious reason which has actually shifted in recent years. While previous generations were getting married and starting families at earlier ages, young adults today are more likely to stay in an urban setting to remain close to their peers.
Population Trends of Young Renters
Whether or not it has happened at the time of this article’s publication, millennials will supplant baby boomers as the largest generation in American history. While baby boomers continue to hold the majority of our nation’s wealth, the purchase power is slowly but surely shifting towards the younger generations. As we mentioned in the introduction, young adults are certainly migrating towards urban environments. However, they are not moving towards “traditional” large cities such as New York, Chicago, and Los Angeles in the same numbers as previous generations. Instead, millennials are finding that more affordable cities provide more convenience and amenities for the price.
Millennials are moving to the Sun Belt. Perhaps the biggest overall trend in millennial migration is that a large number of young adults have chosen Sun Belt states such as Arizona, Texas, Tennessee, and Georgia. This is partially due to commercial real estate and businesses trending towards these locations, but also due to the fact that young renters can afford urban apartments in these states.
Millennials are moving away from major markets. New York, California, and Pennsylvania rank near the bottom when it comes to net population migration. By proxy, we can deduce that major cities such as New York City, Los Angeles, San Francisco, and Philadelphia are pricing out many young renters. This again shows that young renters on the whole are more interested in urban living than specifically living in certain cities.
What Renters Value in 2020 and Beyond
There is no question that most renters value location over square footage in today’s market. Of course, this does not tell the whole story. The main thing that young renters value in their apartments, townhomes, and house rentals is convenience. This includes locational convenience, washer and dryer amenities, access to high speed internet services, air conditioning and central heating, etc.
Larger spaces and “high end finishes” such as granite countertops, fireplaces, hardwood floors, parking, and more are often viewed as luxuries which many young adults cannot afford or are unwilling to pay a premium to enjoy. The primary takeaway is that cash strapped young adults have been forced to become practical and pragmatic when looking for their rentals. As young adults came into the workforce in the wake of the Great Recession of 2008, they have adjusted to this reality of pinching pennies to make ends meet.
Barring a seismic shift in the American economy, there is every reason to believe that young renters will continue to look for location first and foremost when apartment hunting. Younger adults are willing to pay a premium for convenience and amenities, but are less interested in larger, more luxurious apartments. For commercial real estate investors, this may inform decisions on values of properties based on locations and price points. Sun Belt and other “non-traditional” urban markets remain bullish in the face of millennial migration away from ultra-expensive cities.