The Azucena Take: Momentum in the Suburbs

One of the biggest changes brought on by the pandemic was a shift from the urban core to the suburbs. The urban core was once the center of life, commerce, and culture in every community. Now it seems the momentum is shifting to the suburbs. 

This presents a challenge for the investment real estate market. Is the suburbs the area to invest or is there still momentum in the urban core? Like all complex questions regarding the market, the answer is never simple as there are nuances to be examined. 

The Driving Force 

The biggest driving force of this market shift is not current events but demographics. Millennials are leaving the urban core and primary markets in favor of the suburbans or secondary / tenantry markets. The change was already happening but it was accelerated due to the lockdowns and work from home becoming the new normal. 

What this means is that it will not change anytime soon. People are looking to settle and that means moving to markets that are affordable while accommodating. 

Suburban vs. Urban Vacancy Rates

Looking at the difference in vacancy rates will also present a clear picture. As of July 2022, the average vacancy rate 3.7% for urban apartments and 3.1% for suburban apartments. Meanwhile, the average vacancy rate for urban offices is +17.8% while suburban offices are at 15.6%. 

What About the Urban Core?

Does that mean the urban core is dead? No not even close. While the Millennials are moving out, Gen-Z is expected to take their place in the shifting demographics. Many in this age group are starting their professional career and will most likely be concentrated where the culture and commerce are based. 

Given their professional status, they're not going to have the same buying power as Millennials right away but that will change in the next few years. 

What it Means for Investors?

The big takeaway for investors is that demographics are the biggest driving force when it comes to changes in the market. A smart investor would have had assets in a number of markets. Those who failed to prepare can still work to diversify their holdings while preparing for changes in their market. 

To better understand how you could navigate the current market, speak to an expert who understands the investment real estate market. 

The Azucena Take provides an inside look into the investment real estate market using the research done and data collected by Marcus & Millichap