In 2014, Millennials officially surpassed Baby Boomers as the largest group of 25-to-29 year olds in the history of the U.S. That’s a ton of demand, and multifamily professionals want to capture it.
One common assumption about this demographic that needs to be re-examined: Millennials prefer urban areas. A sharply-written article by Ben Casselman over at FiveThirtyEight last year notes that, in 2014, 1.25 million Millennials moved out of cities into suburbs vs. only 980,000 moving from suburbs into cities.
David Morris at Fortune takes a bead on a similar idea, arguing that the Millennial generation has peaked in terms of maturity, and will soon head to the burbs in multitudes to start their families.
At CoStar, we decided to get a better understanding of Millennial migration patterns at the metro level. To do this, we first looked at the number of 10-to-14 year olds in each metro in 1998, and compared it to the number of 25-to-29 year olds in the same metros in 2013. The bellow chart shows which cities gained the most Millennials, and which cities lost the most:
Where Millennials Are Going: 25-to-29 Year-Olds in 2013, Compared to 10-to-14 Year-Olds in 1998 (numbers in thousands)
We then took a look at current apartment construction in those cities gaining the most Millennials. (Note: We skipped New York because it’s a different animal.) The results, as you might expect, show a clear preference for downtown, urban locations.
For example, in Los Angeles—a city which sprawls—44 of the 101 apartment communities with 50+ units currently under construction are within four miles of the city’s dead-center, and 20 are in the Downtown Submarket:
And in Washington D.C., 46 of the 106 communities with 50+ units are within three miles of the city center:
As we pointed out in a previous blog post, there may actually be a housing shortage, but the surfeit of urban, downtown housing obscures that trend.
Developers need to determine if these trends warrant a broader movement toward suburban settings for future apartment developments. In addition to the chance to tap into strong, unmet demand, these sites should also be cheaper to buy and build on.