The first inconvenient truth is that demand growth for offi ce space will be, on average, pretty poor during the next decade. Certainly, there are things that offi ce sector investors can do to attract demand and beat the demographic reaper. As I mentioned in my last NAREIT “In Closing” column, demand for the four- and fi ve-star, best-quality buildings and best submarkets will hold up better. Overall, demographics are deteriorating in many U.S. cities and improving in others. Metros with low taxes, minimal red tape, sunshine and the right industrial drivers should attract people and keep growing. Houston, Denver and Austin all have positive demographics that feature mightily in our forecasts for demand growth across all property types, while Stamford and Milwaukee tell a much more geriatric story.
Starting today, investors ignore demographics at their peril.
Another important concept for commercial real estate, in terms of floor plans, accessibility, and amenities, is the need to change as the structure of the labor force changes. You know that the baby boomers are aging, but here’s a surprise: In 2015, people between ages 54 and 67 will make up more than half of labor force growth. Further, more workers aged 55 to 64 are participating in the labor force just as overall labor force participation is stagnating. Do workers in this group want the same things in office space as people aged 20 to 34? Often, the answer is “no,” although the buzz in commercial real estate markets is that new offi ce buildings need to serve the burgeoning Echo Boomers, who have driven labor force growth for the last fi ve years. Office, apartment, and retail investors, then, should focus more on the windshield than the rearview mirror.
Demographics are destiny, and tomorrow’s world isn’t the same as history.
Hans Nordby is a managing director with PPR, a CoStar company.