For the past several years, conventional wisdom has held that city-loving millennials are flocking to urban cores and will remain there in such numbers that the American suburbs, already well past their prime, can only experience further steady decline. As is often the case, though, the real story is more nuanced; census and CBRE market data show the suburbs are not dead and that the millennial love for downtown environments is not absolute. And all of this has implications for commercial real estate market fundamentals, investment and development.
The most recent available annual data (2014) show that 2.8 million people moved from the suburbs to cities that year; however, 4.6 million did the opposite.1 Since this runs contrary to the prevailing narrative about urbanization, it’s worth digging into the data to see what’s behind these numbers.
There are many ways to look at domestic migration——age, education and profession are all useful in breaking it down. In recent years, media stories have frequently focused on the role of millennials——those born between 1980 and 1995, roughly——in driving the resurgence of downtown areas. The focus on this generation was not unwarranted; millennials are now the largest age group in the country2 and make up the largest segment of the U.S. workforce.3 It is fair to say, however, that census data disagree with the media on where millennials actually live and where they have been moving to.
Approximately 30% of millennials live within urban areas.4 The other 70% do not appear to be rushing to move downtown: In 2014, 529,000 people between the ages of 25 and 29 moved from cities to the suburbs, while only 426,000 moved in the opposite direction. For younger millennials aged between 20 and 24, the flow’s direction was even more pronounced, with 721,000 moving out of cities for the suburbs and 554,000 leaving the suburbs to pursue life in the city. It’s true that some of those moving to the suburbs were returning to childhood rooms or basements in their parents’ homes, but the migration trend still holds: not every millennial can or wants to live downtown.
Among the oldest millennials and the tail end of Gen X, negative net migration was even greater: 1.2 million people aged 30 to 44 moved from cities to suburbs, while 540,000 did the reverse. And what about the ‘‘silver tsunami’’ of boomers and retirees? Census data show a similar trend, though less pronounced. In fact, for every age group tracked by the Census Bureau, more people left cities for the suburbs than did the opposite. The pattern also holds across levels of educational attainment and by profession.5
Of course, one year does not make a trend——but analysis of the recent past suggests that media stories and observations from certain high-profile cities have likely propped up the narrative. Census data simply do not support it. In fact, in 2014, the U.S. was less urban than it had been in 2000.6 Even in the post-recession years——when many asserted that millennials were flocking to cities for employment opportunities——more people were leaving cities for the suburbs than the reverse.7
The remarkable discrepancy between population data and the prevailing narrative raises questions about the preferences of young people in the U.S. What do they want? Simply put: space and an urban feel. One recent survey showed that 81% of young people (defined as millennials and those born in the late 70s) want three bedrooms or more in their residence. Their responses regarding geography reflected this preference: two-thirds of respondents stated a desire to live in the suburbs, while only one in ten wanted to live in a city center.8 Such findings are corroborated by the results of another survey, in which nearly two-thirds of millennial-aged respondents self-identified as suburbanites or rural people.9
Still, millennials have a reputation for appreciating the perks of urban life, such as easy access to public transportation, shops, restaurants and offices.10 This does not necessarily translate into demand for downtown real estate, however. Suburbs too, can develop in ways that appeal to younger demographics, by incorporating elements of urban life in suburban areas. This is occurring in metros across the country.11 New terms have even been coined to describe quasi-urban areas in the suburbs——among them, ‘‘hipsturbia’’ and ‘‘urban burbs.’’
It’s also worth examining office data, to see whether it offers any insight with regard to employment trends. After all, it is possible that the labor economy has been healthier in urban cores than in the suburbs, which might contribute to the popular migration narrative, despite its lack of support from population data.
Looking at office market data——where employment in tech, financial services and other professional services (office-using employment) drives demand——the story appears to be mixed at best. Downtown office markets nationwide have significantly outperformed their suburban counterparts less than one-third of the time since the year 2000, judging by their share of net absorption relative to their share of net rentable area (NRA).
In the years following the Great Recession, the story was largely the same——only perhaps a little more mixed, with downtown markets outperforming suburban markets in two of the years between 2010 and 2015. During one of these——2011——population data were also somewhat supportive of the urban renaissance story.
During the first half of 2016, across markets where the comparison can be made, almost two-thirds of suburban office markets outperformed their local downtown counterparts (share of net absorption vs. share of NRA). In essence, CBRE office market data describe patterns similar to the story told by census data, survey results and other analysis: generally speaking, suburbs are outperforming urban cores.
The data make it clear that America will not condense into its urban cores anytime soon. To the contrary, there are indications that the suburbs are alive and well. Still, one of the most important things to note from all of this is that there is no single narrative that applies across all U.S. property markets.
To be sure, there are downtown markets across the country that have outperformed——and will continue to outperform, in some cases——suburban markets. In the broadest sense, though, the urban renaissance story got a bit ahead of itself. There is potential for many millennial stereotypes to play out in the quasi-urban environments found in the suburbs, however. Driven by family formation and the desire for affordability and urban amenities, the urbanization of burbs will have implications for the future of property markets.
Looking ahead, the evolution of commercial real estate markets will transcend the traditional lines of downtown vs. suburban, or millennial vs. boomer. Each market has its own dynamics that play out on various levels and in unique ways. While there is some truth to the idea of the resurgent urban core, it is also fair to say that the death of the suburbs and millennials’ love of cities have been greatly exaggerated.
Remember, even at the end of How I Met Your Mother, they moved to the suburbs!
By Darin Mellott, Director, Research and Analysis, CBRE
1 U.S. Census Bureau. Geographical Mobility: 2013 to 2014. 2015.
2 Pew Research Center. Millennials overtake Baby Boomers as America’s largest generation. 2016.
3 Pew Research Center. Millennials surpass Gen Xers as the largest generation in the U.S. labor force. 2015.
4 Forbes. Millennial Boomtowns: Where The Generation Is Clustering (It’s Not Downtown). 2014
5 U.S. Census Bureau. Geographical Mobility: 2013 to 2014. 2015.
6 Jed Kolko. Urban Revival? Not For Most Americans. 2016.
7 Los Angeles Daily News. Americans still prefer suburbs over cities: Joel Kotkin and Wendell Cox. 2016.
8 Wall Street Journal. Generation Y Prefers Suburban Home Over City Condo. 2015.
9 Urban Land Institute. Gen Y and Housing: What They Want and Where They Want it. 2015.
10 Nielsen. Millennials Prefer Cities To Suburbs, Subways to Driveways. 2014.
11 Gizmodo. Millennials Will Live in Cities Unlike Anything We’ve Ever Seen Before. 2016.