The U.S. population is constantly evolving, and demographic shifts over the next several years will have a major impact on real estate.

By 2030, the real estate market worldwide is expected to reach a value of $5.85T, with a compound annual growth rate of more than 5% between 2022 and 2030. Market shifts propelling this growth include a 47% increase in the senior population segment by 2050 as well as an 11% uptick in overall U.S. population over the next 25 years.

Not all segments of the population are growing, however — which will also have an impact on the real estate market.

“The three big cohorts shrinking in population are the youngest generation, including children, older students and early-career adults,” said Nicholas Buss, managing director of strategic analytics at Invesco Real Estate. “It's important to look at not just the age trends, but also shifts in behaviors and lifestyle, which go hand in hand.”

Looking at the millennial generation, the age of marriage is moving out further, and so is the age they are having children, Buss said. Individuals are retiring older and choosing to live more active lifestyles for longer. Young adults are living at home with their parents for longer — the number of 25-to-34-year-olds living at home has increased 87% over the past 20 years.

These shifts can be traced to a combination of factors, including higher living expenses, changing cultural priorities and the fact that life expectancy is projected to keep rising, Buss said.

Regardless of why these shifts are occurring, one thing is clear: They are impacting the demand for different housing segments.

“You’re seeing more single-person households and households without children,” said Mike Sobolik, managing director and U.S. regional investment strategist at Invesco. “This group is likely to stay in the rental market longer than we had seen previously, both for lifestyle and affordability reasons.”

Sobolik said the dream of homeownership is more difficult to achieve because of high mortgage rates and home prices and limited product on the market. The result is the market is seeing more people rent for longer. Lack of housing affordability has impacted many segments of the population, but especially the younger generation looking to grow a family, Sobolik said.

Individuals ages 25 to 34 are the traditional demographic for multifamily housing. And even though this age group is expected to shrink over the next 10 years, Buss said apartments remain an attractive investment option.

“We’ve seen multifamily absorption rates increase quite a bit over the past two quarters, but if the demographic trends aren’t necessarily supporting that, then what’s going on?” Buss said.

In many markets, an undersupply of single-family rentals is driving apartment absorption, Buss said. Multifamily popularity isn’t so much driven demographically, but it's a question of alternatives and their availability.

SFRs, however, are becoming a more popular segment of the real estate market because they provide the living space of a traditional single-family home without ownership costs, Sobolik said. The prime age group this market attracts are those in their late 30s and early 40s with young families, and demand for this offering will continue to increase over the next decade, he said.

“From a demand standpoint, we see this as a sector that, for demographic growth reasons and lack of availability, is going to have a lot of housing needs over the next several years,” Sobolik said. “SFRs are just another step added in that potential transition into ownership.”

Historically, the market was dominated by small investors owning five to 10 units. But larger institutional players are trying to bring a more professional level of ownership and management to the sector.

Another sector expected to make gains over the next decade is manufactured housing due to its affordability, Buss said.

“Manufactured housing can be good quality but more affordable than a traditional single-family home,” Buss said. “It provides an affordable option for both working folks and increasingly older adults in locations attractive to retirees.”

In addition, with the rapidly growing senior population, the need for senior housing, including independent living and assisted living facilities, is expected to rise. Sobolik said the age of entrance into these facilities continues to rise as people live longer, more active lives. Not long ago, the average new senior housing entry was the mid to late 70s, but that is now the early to mid 80s, he said.

Student housing may be impacted by a shrinking college-age demographic cohort over the coming decade, Sobolik said.

Student housing is very much a school-by-school story, he said. Among educational institutions, some smaller private schools have closed due to declining enrollments, while large state schools and private schools with large endowments have continued to grow. Enrollment trends, both of domestic and international students, will be critical to evaluate moving forward.

“It's going to be a winners-and-losers market,” Sobolik said.

Buss added that some public school districts face declining local populations and tax revenues and recognize that they may not have enough students to support the viability of certain locations. School closures would leave these campuses empty and make them prime candidates for redevelopment.

Age-related population trends aren’t the only factors impacting property sector demand trends. Immigration, economic growth and geographic location are also major drivers of these shifts, Buss said.

“To grow the economy, you need an expanding population,” he said. “Without immigration, we don’t have the numbers to support that. The data suggests that we are about 15 years from where deaths will exceed births in the U.S., so we are dependent on immigration to drive our economy.”

Geographically, Sobolik and Buss predict the bulk of demand and growth across property types will be in the South and Mountain regions. About 10 states will account for more than 90% of the net population growth over the next decade — including the Carolinas, Georgia, Nevada, Texas, Florida and Utah. Texas and Florida alone will account for nearly one-half of that growth, Sobolik said.

On the contrary, the populations of Midwest and Northeast regions will become older because they are not seeing foreign immigration at the same rate and are seeing domestic outmigration to more dynamic cities, Buss said.

Invesco is positioning itself to capitalize on these demographic and demand trends, Sobolik said.

“A diverse set of residential sectors have a fair amount of demand expected over the next several years, so we're trying to look at gaining exposure to as many growth drivers as possible,” he said. “We want to be diversified across the residential spectrum and try to lean into those locations that we think are going to generate the most growth.”

This article was produced in collaboration between Invesco and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.