When the destiny of demographics changes

Ageing populations represent a structural challenge to mature economies worldwide. Japan, Germany, and much of southern Europe face rising dependency ratios, shrinking workforces, and decreased consumer spending. South Korea and China are also aging rapidly.

These shifts create significant economic headwinds: slower GDP growth and pressure on public finances. The implications for commercial real estate are profound. Reduced household formation dampens housing demand. Changing consumption patterns reshape retail. Office needs contract with smaller workforces.

The US is not immune to these challenges. Declining fertility rates and an aging population mean the contribution of natural increase to population growth has dwindled.

However, unlike other mature economies, the US has historically attracted international talent and offered a degree of openness to immigration. Although immigration will become the sole source of population growth during the 2030s, many assumed the US would not face such demographic headwinds.

But the outlook has changed dramatically. The Trump administration has moved with pace to implement its top priority: reducing immigration.

A national emergency on the southern border has been declared. Military support, accelerated wall construction, expanded detention, and suspended humanitarian programmes are now in place. Stricter deportation policies are being enforced, too.

These actions have already produced results. Over the three months to April 2025, the monthly number of southern border encounters has averaged just 11,600. During the same three-month period in the previous three years, the equivalent number averaged 193,800. A more dramatic decline would be hard to imagine.

Immigration’s turning point: A lasting paradigm shift

The clampdown follows several years of unusually high immigration, the causes of which are only partially understood.

Critically, there has been a fundamental, permanent change in how easily people can reach the US border. The Darién Gap between Columbia and Panama has transformed from a formidable natural barrier into a major migration corridor. Ten years ago, crossing the Darién Gap was considered a near impossibility. In 2023, over half a million people did so.

This has made historic levels of openness unsustainable – a point both political parties are adapting to. A different administration would handle elements of immigration policy very differently. However, for both practical and electoral reasons, future administrations are likely to maintain restrictive immigration policies for many years to come. Tighter border controls represent a lasting change, not a temporary adjustment.

Against this backdrop, real estate professionals must consider the implications for their portfolios.

Localised consequences of immigration policy

A sustained reduction in immigration will negatively impact national growth forecasts, but the real estate implications will be local. Local concentrations of immigrant communities will significantly impact certain neighbourhood retail centres, for example.

Many property sectors, particularly healthcare and hospitality, depend heavily on immigrants to operate real estate. Investors should assess whether labour risks are being actively managed by their operators. Operators with a successful track record of recruiting and retaining domestic workers should have an advantage. Those incorporating automation and technology may be better positioned to face the challenges ahead.

However, when considering the effects of reduced immigration, it is natural and appropriate to focus first on the impact on residential markets. Immigration spurs demand for housing, particularly rented accommodation.

Local and asset-specific factors will define vulnerabilities. Investors with deep knowledge of their tenant base will be advantaged in assessing the risks they face. However, we can develop a high-level view of where problems may be most acute by reviewing metropolitan data and exploring the relative importance of domestic and international migration in driving growth in metropolitan areas.

Gateway cities rely on international migration

Traditional gateway cities generally rely heavily on international migration to offset domestic outmigration and low natural population increases. New York, Los Angeles, Boston, and San Francisco, therefore, appear among the most vulnerable markets. San Jose stands out as highly exposed, too.

Miami appears particularly exposed with its extremely high foreign-born share of the population and heavy dependence on immigration to counterbalance domestic losses. Furthermore, multifamily developers have been highly active recently in Miami. If there is a sustained reduction in international immigration, significant adjustments in rent may be needed to align supply and demand.

The hidden immigration dependency of America’s growth markets

Less widely recognised is the vulnerability of several Sun Belt metropolitan areas. Many of these have long been considered domestic migration hubs, but that is changing as people adjust to climate change. Over the past 50 years, Americans’ tendency to move from the coldest places (which have gotten warmer) to the hottest places (which have gotten hotter) has steadily declined.

While many of these cities saw significant population gains driven by domestic inflows during the pandemic, the continued expansion of Orlando, Houston, Dallas, Austin, and Atlanta, for example, has increasingly relied on international migration.

The Dallas multifamily market, for instance, is generally thought to have robust demand characteristics. But for every recent domestic migrant making Dallas their new home, there have been four international newcomers. And in the urban core of Dallas – as is the case in Houston – international migration is countering domestic outmigration.

Many Sun Belt markets are currently oversupplied, with multifamily rents on a downward trajectory. Many investors have remained positively disposed towards these markets, nonetheless, pointing to the robustness of medium-term demand. A drastic revision of international migration forecasts may make the picture less rosy. Investors must ensure they set their expectations correctly: history may not be a good guide to the future. They may want to refocus their exposure on the sunbelt cities primarily driven by domestic migration, such as Charlotte and Nashville.

The supply-side challenge: Construction’s immigration dependency

Even before allowing for informal employment of undocumented workers, the data shows that immigrants make up a much larger share of the construction workforce than the overall workforce.

Labour shortages are likely to push construction costs, constrain new housing supply, and increase rent pressure. Reduced immigration simultaneously decreases demand and constrains supply. The net effect on vacancies, rents, and property values will vary significantly by market and property type.

The markets of most concern may be those with existing supply and demand imbalances, where downward revisions to demand growth are now appropriate.

New investment imperatives for a low-immigration era

Investors must look beyond headline population growth numbers to target markets with positive domestic migration and strong economic fundamentals.

Development projects must factor in potential labour shortages, higher costs, and extended timelines resulting from reduced immigration.

New development underwriting in gateway markets particularly requires particular scrutiny. Labour availability concerns need to be factored into cost estimates, and lease-up assumptions need to be tested for scenarios very different from recent history.

Sun Belt exposure needs to be reassessed to determine the extent to which growth has been driven by international migration. Investors need a clear-eyed view of current demand drivers and to understand how they have changed over time. Those clinging to outdated demographic assumptions may find themselves exposed to increasingly challenged markets.

A version of this article originally appeared in The Property Chronicle. To read other articles I have written for The Property Chronicle, please click here.