The flight from urban centers to the suburbs that characterized much of the latter half of the 20th century is seeing a reversal. Collar communities across the US are facing rising vacancy rates as a generation of thirtysomethings and younger are breaking the pattern of previous generations by seeking life and work spaces close to each other, without long maddening commutes.
The urbanization trend has a lot of factors driving it. Depending on who you ask, the answers given to explain this shift point to the rise of always-connected technology-enabled life- and working-styles. Some point to somewhat fanciful ideas about “Generation Y” kids growing up in over-secure, helicopter-parented childhoods looking for the risks of urban life as a way to establish independence at long last.
Whatever the reasons, the shift in urbanization is real. Market research by IBISWorld highlights the trend in terms of hiked multifamily construction starts and other growing measures like rentals in urban centers. Put simply, a city apartment boom is underway, and a lot of industries are going to feel the benefit.
“As the US economy picks up during the next five years, both the rate of urbanization across the country and the per capita income of urban residents are expected to accelerate,” according to the IBISWorld report, titled “Moving on up: Top industries to benefit from urbanization.” Along with apartment construction, these shifts will lead to growing demand for testing and educational support, single location full-service restaurants, apartment rental, street vendors and public transportation.
Although operators in these industries are not anticipated to encounter a lack of demand in the next five years, “they are expected to face more intense competition among peers for market share within the rapidly growing urban markets,” the report states. “The benefits of urbanization, though, will increase the number of workers and establishments operating in these industries.”
Driving the demand apartment boom in part is the rapid growth of companies in the healthcare, technology and finance sectors. “These industries are attracting an increasing number of young professionals and college graduates, a demographic that has boosted the population of urban areas,” according to the report.
Accordingly, IBISWorld expects revenue for the apartment and condominium construction industry to increase at an annualized rate of 3.7% in the five years to ‘19. Profit margins for the rental industry have lagged the 9.1% annualized growth seen by the construction sector since 2009, though, and will continue to lag over the next five years, albeit not quite as dramatically: 2.5% annual growth, compared to 3.7% for builders.
The Takeaway For Multifamily Professionals
Suburban apartments and condominiums can only feel the most disruption from the interruption of the decades-long migration pattern from downtown to the boonies; multifamily markets markets in many collar communities are likely to get tougher to rent, and building starts are likely to become harder to finance.
Aggressive marketing in billboards (as in above, a campaign in Chicago promoting the western suburb of Berwyn) and on public transportation is likely to pick up in major cities; professionals working suburban markets should be organized into effective Chambers of Commerce to mount such campaigns. The suburbs can’t count on old migration patterns any more.