During periods of economic uncertainty, diversification is one of the best ways to protect the value of an investment portfolio. Real estate low correlation to the stock market provides diversification, smoothing potential losses and volatility. Historically, private equity real estate has outperformed stock and bond market risk-adjusted returns over the past 40 years. Investments in real estate offer steady income and capital appreciation, and multifamily and senior housing assets have proven resilient during downturns. Here are the demographic trends that translate into demand for multifamily and senior housing real estate opportunities:

By 2025, the largest age group in the United States will rise to 34, up from 28 in 2019. The aging of the millennial population will boost suburban demand, as more young couples move out of urban areas looking for more space and better schools for their kids. Suburban apartment rate increases have outpaced urban locations in the last years, and suburbs have an affordability advantage.

Homeownership has been at historic lows, creating an unprecedented demand for rental housing- especially for senior and middle-income working families. Real estate prices have increased more sharply than wages making the acquisition of a house more difficult year over year. Also, affordability is especially a problem for millennials, whose debt burden is too high because of student loans, and therefore debt ratios are difficult to achieve. The affordability gap between renting and owning remains substantial.

All ages are fleeing high-cost cities and states.  Six of the 10 states that attract millennials are in the South, and seniors continues to flock to the Sun Belt, the region in the U.S. that stretches across the southern and southwestern portions of the country from Florida to California. 70% of the fastest-growing cities in the U.S. in the last four years are in the Sun Belt. Growth demographics are driven mainly by tax advantages, affordability and quality of life. Moreover, the access to technology and remote work has decreased the benefits of living in the city.

Baby boomers (born between 1946 and 1964) represent one of the largest generations in history (69 million) and 10,000 baby boomers turn 65 every day. This trend will continue, and by 2050, the 65+ age group is estimated to exceed 88 million, double today’s count. The need and demand for senior housing will only increase as baby boomers require health and wellness services. The future demand for senior housing is twice the annual production of the past five years.

Sources: Marcus & Millichap Research Services, PGIM Real Estate, Cushman & Wakefield