Debunking the Myth that Millennials Hate the Suburbs

John Jordan | August 2016

Photo Credit: Rendering of redeveloped Division St., downtown New Rochelle from Photo Credit: Rendering of redeveloped Division St., downtown New Rochelle from RXR website on New Rochelle Master Development

WHITE PLAINS—The popular lore for some time among many real estate professionals and most media pundits is that Millennials are shunning the suburbs and instead are flocking to major cities in search of collaborative office space and rental housing in a “24-7 live-work environment.” A report appropriately entitled “Myth Buster: Young Americans Do Like The Suburbs” provides stark evidence that at least some of that premise is simply untrue.

While Milennials continue to flock to major urban cores, such as New York City, Boston, Cambridge, MA, Seattle, etc. locations in the Hudson Valley that are near mass transit and are developing a “24-7 live-work environment,” such as New Rochelle, White Plains and Yonkers, are also popular with that age demographic.

Area Realtors are servicing more and more Millennials who are looking for rental and for-sale housing in the region. Some members of that highly sought after age group are deciding to remain in Westchester, while others are conducting home searches here after being frustrated by the steep housing costs in Manhattan and trendy Brooklyn.

Darin Mellott, director of research & analysis for commercial real estate brokerage firm CBRE and author of the Myth Buster report went so far as to say, “The death of the suburbs is greatly exaggerated. Despite what we often hear, more people across all age cohorts—including Millennials—are still migrating out of cities and to the suburbs.”

He continued, “Looking ahead, the evolution of commercial real estate markets will transcend the traditional lines of downtown vs. suburban, or Millennial vs. Boomer. The story is more nuanced and evolving in ways that create hybrid environments. For example, in many markets, suburban areas with urban characteristics are thriving.”

According to the latest U.S. Census data available, approximately 30% of Millennials live within urban areas. The other 70% do not appear to be rushing to move downtown. In 2014, 529,000 people between the ages of 25 and 29 moved from cities to the suburbs, while only 426,000 moved in the opposite direction. For younger Millennials 20 to 24 years old, the flow’s direction was even more pronounced, with 721,000 moving out of cities for the suburbs and 554,000 leaving the suburbs to pursue life in the city. Among the oldest Millennials and the tail end of Gen X, negative net migration was even greater: 1.2 million people aged 30 to 44 moved from cities to suburbs, while 540,000 did the reverse, according to the CBRE report.

CBRE’s Mellott stated in the report that during the first half of 2016, almost two-thirds of suburban office markets outperformed their local downtown counterparts when looking at share of net absorption relative to market size. That is not the case when comparing Westchester County, which sports an office vacancy rate of 22.8%, according to brokerage firm JLL at the end of the second quarter, as compared to New York City, whose vacancy rate stood at 9.9%.

Real Estate In-Depth interviewed some prominent Realtors as well as municipal officials on whether Millennials are beginning to choose locations in Westchester, particularly near mass transit and suburban downtown districts to avoid or escape the high cost of housing in New York City.

New Rochelle Mayor Noam Bramson said the city, after approving a rezoning of its Downtown district and an expedited approval process last December, is seeing a huge uptick in new residential development projects, many of which are geared to attracting Millennials, as well as empty nesters.

“Millennials are among our key target markets. We believe that the blend of suburban and urban characteristics that are already present in New Rochelle and that we are trying to enhance through our downtown development plans will make our community especially attractive to Millennials,” Mayor Bramson said.

Recently, RXR Realty’s plan for a 28-story nearly $150-million apartment tower in the downtown was approved by the city and should commence construction in the fall of this year. Mayor Bramson said he expects RXR to announce its second downtown development project in the Queen City before the end of this year.

The mayor noted that there are other significant downtown projects in the pipeline, including the Print House project on Huguenot Street, that are being marketed to Millennials.

In fact, in March Megalith Capital Management, a real estate owner and developer in New York City, announced it had acquired the Print House development site at 165 Huguenot St. in partnership with East & Hudson Real Estate.

Phil Watkins, principal of Megalith, in announcing the purchase, spoke of the Queen City’s allure to Millennials. “With rents in Manhattan continuing their dramatic increase, Millennials especially are looking for affordable alternatives that still feature the latest in modern amenities,” Watkins said. “This ground-up rental development project located within 30 minutes of Manhattan is part of a broader investment thesis which focuses on transit-oriented projects located in areas with close proximity to Manhattan.”

The planned six-story, 71-unit luxury rental development with ground floor retail space is projected to be completed within two years. According to the city, the project, which will cost more than $11 million to develop, has received site plan approval.

Another project in New Rochelle’s Downtown pipeline gives up its hoped-for resident demographic with its name—“The Millennia.” The project, estimated to cost $25 million to complete, will involve the construction of a six-story, 110-unit residential building with retail at 22 Burling Lane. The project secured site plan approval from the city in July.

The city currently has three additional-mixed use projects in the pipeline in the Downtown District. New Rochelle Commissioner of Development Luiz Aragon told Real Estate In-Depth, “The city has met with many developers and property owners that have expressed interest in developing under the DOZ (Downtown Overlay Zone). As a result, we anticipate several more applications in the fall.”

Jonathan Miller, CRE, CRP, president and CEO of Miller Samuel Inc. which conducts research and authors Douglas Elliman’s market reports for the New York Metropolitan Area, said he noticed a definite change in the market about a year ago in terms of Millennial housing traffic.

Beginning in earnest in the third quarter of 2015, Miller said his firm noticed, “A surge in sales activity in the outlying suburbs in New York City and at the same time we saw sales soften in New York City.” That sales trend has continued up until now. Miller, who researches suburban residential market conditions in Westchester, Putnam, Dutchess, Nassau and, Suffolk counties in New York and Fairfield County, CT, noted the development boom in New York City since the end of the recession has been skewed to luxury rental and for-sale housing. “The lower end or the bottom half of the market is not seeing new supply,” he said, while the city has enjoyed record level job growth over the past few years that has created the largest labor force in the city’s history.

He attributed at least part of the surge in home sales in Westchester, Putnam, and other metro suburban markets to renters and homebuyers escaping the city’s high housing costs or lack of market rate or affordable housing.

“One of the clearest patterns is that you are seeing renters becoming first time home buyers (in the suburbs) and the demo is heavily Millennial,” he said. The locations that are benefitting from this trend are those near train stations, near downtowns or town centers.

The Millennial buyer or renter is attracted to locations close to the Metro North Hudson and New Haven lines, he noted. At present, there hasn’t been much home price growth in Westchester and outlying suburbs. He expects that may change if the demand for rental and purchase housing continues to be strong in the months ahead, due in part to displaced Millennials.

2016 HGAR President Marcene Hedayati agreed that Millennials are becoming a key driver in the strong home sales market in Westchester County. Hedayati, who is the Principal Broker/Owner of William Raveis Legends Realty, which has offices in Briarcliff, Tarrytown, Irvington and Hastings, said that her agents termed the notion that Millennials are staying in Manhattan and not even considering the suburbs as “bogus.”

“They say that the bulk of their buyers are Millennial and they are coming out to the suburbs and that they are definitely a part of the buyer pool—a huge part of it,” Hedayati said.

She said mass transit has become a much more important criteria for today’s buyers and renters. “Anything that is within walking distance to a town or close to a town by a bike ride or a jog, something like that is going to sell before anything else.” Hedayati added that Millennials are not just leaving Manhattan, but also Brooklyn and relocating to Westchester.

Hedayati said that she is not surprised that Millennials have become one of the drivers in suburban buyer and rental demand. Perhaps another influence on the market by Millennials is that the staple ‘old and charming,” which was a hot seller not too long ago, is difficult to sell now unless it is completely renovated and move-in-ready.”

J.P. Endres, manager of the New City office for Better Homes and Gardens Rand Realty, said the high cost of housing is definitely bringing Millennials to sections of Westchester County and even locales in Rockland County.

She said that Millennials are interested in properties that offer them more space and are keenly interested in newly constructed homes or developments.

Endres said that rental and for-sale prices in New York City are getting higher, while units are getting smaller and smaller. “They are getting pushed out into the suburbs and in the suburbs they just want new and clean,” she said.

She added that in Westchester, new rental housing product is enjoying strong demand from Millennials. One rental property under development in Port Chester, which is being marketed by Better Homes and Gardens Rand Realty, has a waiting list of more than 1,000. Endres said that Rockland County is seeing Millennials from New York City, Westchester and New Jersey looking for lower cost housing. Some of the hot markets in Rockland include: New City, Nyack, and Piermont.

In the sales market, Millennials are looking for new and or move-in-ready and near shopping, and transportation. In many cases, Millennials have come to realize that with the cost of rental housing in the region so high, they can afford to purchase their first home. “They do believe in the benefits of buying and owning,” she added.

 Photo Credit: Rendering of redeveloped Division St., downtown New Rochelle from RXR website on New Rochelle Master Development

 

John Jordan
Editor, Real Estate In-Depth