Hessam Nadji

The Forming Demographic and Market Wave: How to Invest Amid Change

“We have determined this is the time to sell and it is also the time to buy … and this has nothing to do with the fact that we are a brokerage company,” said Marcus & Millichap President and CEO Hessam Nadji during a two-part keynote presentation on big picture demographics and commercial real estate investing, presented at CRE.Converge 2019 in Los Angeles. 

He highlighted the fact that the economy is strong and there are currently more job openings than there are people looking for work. Since 2007, the economy (in terms of GDP) has grown $6.7 trillion. These factors are all positive indicators for the real estate industry.

However, amid this positivity, people are obsessed with risk and uncertainty.

He noted other top-of-mind concerns including tariffs as well as interest rates – which play a huge factor in CRE. The Federal Reserve had aggressively raised rates but is now pulling them back. Ultimately, these issues have created more market uncertainly, leaving many investors and owners hesitant about how to proceed. 

“But are we headed into a recession? My answer to that would be maybe, maybe not. We are so fixated on that one question,” he observed. “Trying to time a recession is not feasible but diversification, not over-leveraging, is far more effective than waiting on the sidelines. So for us it is about helping our clients make sense of all this.”

Along with Nadji’s investment perspective, Pew Research Center Senior Economist Richard Fry, Ph.D., presented a detailed overview of demographics trends and why they matter for the U.S. economy.

He noted that U.S population growth has slowed over the years. Immigration is a key driver of population growth; immigrants and descendants of immigrants account for 72 million in population growth from 1965 to 2015. Moving forward, it is clear that immigration will continue to play an important role in national growth.

Turning to household formation trends, Fry noted that since 2010, household growth has trailed population growth. In 2018, household growth was only 4% while population growth was 6% – the first time in 160 years that household growth has been above population growth. What’s behind these numbers? Slightly bigger households due to multigenerational living – with growing populations of Asian and Hispanic groups more likely to live in multigenerational households – as well as sizable numbers of young adults living in their parents’ homes longer, delaying the formation of independent households.

Another demographic point that Fry highlighted: the U.S. population is increasingly concentrated in metropolitan areas. In 2018, 85.9% of the entire population lived in metro areas – up from 84.3 in 2000.

America is also aging with a significant emphasis placed on millennials and baby boomers. Within these two categories there will be a lot of change and shifts in living arrangements. In 2018, the peak millennial age was 27, an age on the cusp of forming a household. Additionally, the peak baby boomer age in 2018 was 58; this demographic is anticipated to make new housing choices by downsizing as they are moving into retirement in the coming years.

When it comes to investments, demographic and economic shifts need to be considered, and the demand for yield continues to be significant from private investors as well as institutions. But the fact remains that there has been appreciation in value in all CRE sectors and an abundance of capital is flowing into core markets as well as secondary and tertiary metro areas, as investors ranging from institutional to small private family offices seek to invest in tangible assets.

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This post is brought to you by JLL, the Social Media and Conference Blog sponsor of NAIOP’s CRE.Converge 2019. Learn more about JLL at www.us.jll.com or www.jll.ca.

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