For the past few years, Philly has patted itself on the back for drawing millennials to its in droves. Report and report showed that this city was a top choice for 18- to 34-year-olds, and the apartment rental market noticed.
But new numbers suggest that Philly may be close to reaching “peak millennial” status, for better or worse.
“Philly has one of the largest concentrations of any market in the country, but the suggestion is that the trend of adding millennials quickly might be slowing down,” says Lauren Gilchrist, vice president and director of research for JLL Philadelphia.
Gilchrist, curious about the current impact of millennials on the real estate market, recently crunched some U.S. Census Bureau numbers to see how new apartment construction has been responding to this perception of millennial demand for units. She then took it a step further and compared Philly’s millennial growth over the years to other major cities.
Clearly, Philly leads the pack when it comes to millennial growth from 2007 to 2015, with population skyrocketing in 2009. But as Gilchrist points out, that rapid growth seemed to level off beginning in 2013.
Specifically, the annualized growth rate from 2007 to 2015 was 1.7 percent. But year over year from 2014 to 2015, it was 1.2 percent.
“I think it begins to suggest that, yes, this is an important demographic, but the growth rate is slowing,” says Gilchrist.
This isn’t just a Philly-centric phenomena. Another recent analysis of census data revealed that millennials in general are moving to second-tier cities—think Charlotte, Houston, and Austin—from coastal ones.
A number of factors are at play with this trend, including job growth and affordability. In Philadelphia, for example, while there’s strong demand for apartment construction, they’re being offered at a price point that millennials can’t afford, says Gilchrist.
Median monthly rents have slowed slightly in recent months, so this could change in the next year. Still, homeownership still remains out of reach for many millennials in Philly and other major cities, with rising house prices and lack of inventory. Real estate website Redfin says that’s another reason why millennials are making the move to these second-tier cities: “Millennials especially are looking for high-quality appliances and other finishes in exchange for giving up the flexibility that comes with renting.”
Still, don’t expect some mass exodus of millennials right away. Gilchrist reassures that millennials still make up a significant 31 percent of Philly’s population. “I think millennials will continue to play an outsized role in purchasing decisions in Philadelphia and drive demand for retail—likely multi-family as well,” she says.
But developers hoping to make bank off of millennials may need to reconsider the construction boom. Says Gilchrist, “Anybody who’s thinking from the real estate side about development needs to think carefully about what sort of stabilizing millennial population means and what that demographic is able to afford.”