I recently attended an event organized by National Association of Realtors (NAR). Attending guests included senior board members from across the country. As I presented in cities large and small, I have quickly come to learn that there is a national shortage of both residential and industrial real estate.
The Supply Doesn’t Meet Demand
There is clearly a major population shift occurring from outer suburbs to inner cities. Cities from Amarillo to Cleveland are seeing changes in city-dwellers’ living habits, which create a real need for more urban development, particularly urban condos. Although development is happening, it’s not happening quick enough to supply the demand, therefore pricing has become unaffordable throughout the country.
Affordable housing was the center stage topic of the NAR convention. Cities like Detroit are seeing major development throughout the city, but it’s not growing fast enough to gentrify areas caught in the middle of high crime areas. This results in high-crime neighborhoods surrounding the new development.
Not Enough Warehouses
The next area of shortages in Industrial or warehouse properties. Because rental rates have not kept pace with overall development costs, this type of property has been out of favor for new development for quite some time. Now, shortage exists everywhere, creating real challenges for businesses seeking to expand in their marketplace.
For example, Napa Valley ‘s industrial warehouse vacancies are now at 1.3 percent. Yes, with the expanding wine industry, businesses are finding themselves choked off for growth because they don’t have enough warehouse space to store their product.
In Hayward, where the industrial vacancy is only one percent, small to big businesses can’t find any warehouse space available because none have been developed for so long.
The challenge with these shortages rest in the length of time it takes from acquisition to permitting to the actual building process. All markets are experiencing long delays in securing permits, thereby creating more pressure on shortages in the marketplace.
So, what’s going on? Clearly, we are seeing continued growth in our economy, but typically housing shortages are caused by population, not economic growth.
Lifestyle Changes Force Industry Changes
One fact that I was discussed that I would never have guessed is the size of the millennial
Generation. I assumed incorrectly that the Baby Boomers still represent the largest population block. However, that is not the case. Today, there are roughly around 60 million baby boomers, but over 100 million Millennials– making Millennials the winner of the market share. As we continue to develop, it’s important to keep in mind what Millennials want.
According to a recent study from the Urban Land Institute, Millennials identify themselves with the following words: entitlement, connection, ambition and innovation. Each of these words directly correlate with the lifestyle and real estate Millennials demand.
Convenience is a top priority for urban Millennials on the house hunt, and residential mixed-use spaces are a part of the solution to address their needs. Crucial needs for living space includes walkable distance to public transportation, amenities such as an at-home gym, nearby dining and entertainment. As population density in urban areas continue to climb, it’s important that cities develop properties that the bulk of the market would be interested in investing in.