If commercial real estate reflects societal change, the suburbs are its clearest mirror.
Demographic shifts present both challenges and opportunities within the real estate market, particularly for private equity investors. Lifestyle changes and evolving workplace norms reshape the market, placing suburban hubs at the forefront of innovation and growth.
The trends are undeniable. Baby Boomers are retiring in record numbers, while Generation Z is poised to make up 30% of the workforce by 2030. That brings fresh expectations for how offices, homes, and retail spaces function.
Add to that the trend of urban-to-suburban migration, with the National Association of Realtors finding that 41% of movers from central city areas will relocate to suburban locales in 2024. It’s clear that suburban markets like OC and IE are the new frontier for innovation and growth in CRE.
At Economos DeWolf, we help clients capitalize on these transformative real estate market shifts. By combining a deep understanding of Orange County demographic trends and economic factors with strategic expertise, we’re not just reacting to the future but helping build it in a dynamic market.
As you explore the profound impact of generational shifts, suburban migration patterns, and the rise of sustainability in CRE, one thing becomes clear: the suburbs are no longer just an alternative to urban centers. They’re the new center of attention.
The Aging Population: The Rippling Boomer Effect
As Boomers retire and reassess their living arrangements, their decisions create challenges and opportunities for developers and investors. The growing demand for healthcare real estate, including senior housing and medical facilities, is a direct response to these demographic shifts. Let’s take a look.Demographic Shift
Baby Boomers, born between 1946 and 1964, are retiring at an accelerated rate. According to the Pew Research Center, approximately 10,000 Boomers reach retirement age daily, a trend expected to continue into the 2030s. This substantial demographic shift leads many to downsize or relocate to senior-friendly communities, where they seek accessibility, healthcare proximity, and reduced maintenance responsibilities. Communities that offer accessible healthcare services are particularly attractive to retirees looking for comfortable living options that support their health and lifestyle requirements.Real Estate Turnover
The transition of Boomers into retirement is anticipated to result in significant real estate turnover. A study by the Mortgage Bankers Association projects that by 2035, approximately 9 million homes owned by Boomers will be vacated, either through sales or inheritance. This turnover presents opportunities for real estate development, especially in suburban markets. For instance, outdated office spaces could be repurposed into residential units or mixed-use developments catering to senior needs.Impact on Real Estate Demand
The demand for senior living spaces and accessible housing is on the rise. Developers are increasingly focusing on creating environments that offer amenities such as single-story layouts, walk-in showers, and proximity to medical facilities. The demand for medical office buildings and other healthcare facilities is also increasing, driven by the aging population. To meet this growing demand, adaptive reuse projects, such as converting obsolete commercial properties into senior housing, have potential in suburban areas like OC and IE.Challenges for Developers
Catering to the aging population presents developers with specific challenges. Compliance with accessibility standards, such as the Americans with Disabilities Act (ADA), is paramount. This can take various forms, such as integrating non-slip flooring, wider doorways, and emergency response systems, which can also increase construction costs. However, these investments meet the preferences of Boomers, many of whom express a desire to “age in place” and maintain independence.Suburban Migration: Post-Pandemic Shifts and Demographic Trends
The COVID-19 pandemic fundamentally altered where and how people live and work — and we’re only starting to see the impact and change. This shift is particularly evident in secondary and tertiary markets, where affordability and quality of life are major draws for younger generations.Demographic Trends
During the pandemic, migration to suburban areas like Orange County and the Inland Empire (IE) surged, driven by remote work and a desire for more space. According to the National Association of Realtors, 41% of movers from central city areas relocated to suburban locales. This trend is particularly pronounced in OC and IE, as families and professionals seek communities with access to top-rated schools, open spaces, and more affordable housing. Population growth in these suburban areas is significantly influencing housing demand and property values. The flexibility of remote work remains a key driver. As fewer people feel tethered to urban office spaces, they prioritize lifestyle over proximity. For CRE stakeholders, this means rethinking how suburban spaces are utilized and marketed.Impact on Commercial Real Estate Market Demand
Suburban migration has increased demand for office parks and retail spaces outside urban cores, significantly impacting real estate markets. Unlike pre-pandemic trends, where mixed-use developments thrived in cities, suburban markets are seeing a resurgence of standalone office parks designed to appeal to hybrid workers. Nationally, the office vacancy rate remains elevated at 17.7% as of Q3 2024, but suburban markets are recovering faster, with localized office spaces catering to employees seeking shorter commutes and improved work-life balance. Retail demand is also shifting. Suburban consumers increasingly favor shopping centers and community-oriented retail hubs over dense urban developments. With national retail vacancy rates holding steady at just 4.1% in 2024, demand for quality suburban retail spaces remains high, driven by preferences for convenience and outdoor-focused designs.Opportunities for Developers
Developers have a unique opportunity to reimagine suburban properties to meet post-pandemic needs. Strategies include:- Flexible Office Spaces: Creating smaller, tech-enabled office parks that support hybrid work models.
- Retail Redesigns: Developing community-focused retail centers with walkable layouts and outdoor dining options.
- Residential Adaptations: Converting underutilized commercial properties into mixed-use developments that include housing and green spaces.
Case Study in Orange County: Adapting to Preferences, Building for Growth
Orange County is a prime example of how suburban markets are thriving by embracing changing consumer and tenant preferences. The region has become a hub for innovative office and retail developments that cater to new demands for flexibility, wellness, and community connection. Take The Boardwalk in Irvine, for example. This innovative office campus offers more than just workspaces; it features outdoor collaboration areas, integrated wellness amenities, and green spaces designed to appeal to hybrid workers seeking a balance between productivity and lifestyle. The pandemic accelerated the need for such spaces, and The Boardwalk has become a model for what suburban office parks can achieve in this new era. On the retail side, the River Street project in San Juan Capistrano is redefining suburban retail with its blend of local charm and modern amenities. By integrating open-air shopping, dining, and cultural experiences, this development is becoming a destination for both residents and visitors seeking a lively, welcoming environment. Beyond these marquee developments, Orange County’s broader CRE landscape is shifting to align with post-pandemic realities. For instance:- Irvine Spectrum Center: A large-scale retail and entertainment complex that continues to adapt by integrating outdoor spaces and hosting community-driven events.
- South Coast Metro: A mixed-use area combining offices, retail, and cultural institutions, positioning itself as a hub for both business and leisure.
Generation Z and Millennial Preferences: A Younger Generation Has New Demands
As they get older, Millennials and Generation Z are becoming dominant forces in the CRE market. These younger demographics have new expectations for how spaces, from offices to retail centers, are designed and utilized. Combined, these groups are shaping CRE’s future as tenants and employees. Adapting investment strategies to align with these demographic changes taps into this growing market segment. Many millennials, now in their prime earning years, are drawn to suburban markets for affordability, family-friendly amenities, and access to quality schools. Meanwhile, Gen Z, known for its digital fluency and preference for experiences, influences how properties are marketed and designed.Impact of Demographic Shifts on Commercial Real Estate
One of the more surprising trends is the resurgence of interest in in-person office environments, particularly among Millennials and Gen Z. While remote work remains popular (Gallup points out that 26% of employees are still exclusively remote), younger employees value the socialization, mentorship, and professional growth that comes with physical office spaces. Many younger employees are drawn to urban areas that offer amenities like entertainment and cultural activities, influencing their purchasing behaviors. Developers are responding by creating office designs that cater to these preferences:- Tech-Forward Spaces: Offices equipped with state-of-the-art technology to support hybrid work.
- Flexible Layouts: Open, modular spaces that encourage collaboration and creativity.
- Wellness Features: Elements like outdoor workspaces, natural lighting, and fitness facilities to prioritize employee well-being.
Trends in Retail
Beyond office spaces, millennials and Gen Z demand convenience, personalization, and sustainability in retail. According to research shared by Bain & Company, these younger shoppers expect seamless digital-to-physical experiences, such as mobile payments, curbside pickup, and in-app navigation. They also seek values-driven brands and eco-conscious spaces, pushing developers to prioritize sustainability in design.- Community-Oriented Retail Hubs: Centers that blend retail, dining, and entertainment in a walkable environment.
- Experiential Retail: Spaces that offer unique, in-person experiences, such as pop-up shops or interactive exhibits.
- Sustainability Features: Eco-friendly design elements, such as solar-powered facilities and recycling programs, resonate with Gen Z values.
