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Hispanics are now the largest and fastest growing minority group in the US. Expanding at an annual rate of 4.4% since the end of 1990, the Hispanic population now numbers 42.4 million, representing about 14.3% of the total population. This rapid increase is expected to continue, accounting for about 45% to 50% of US population growth going forward. According to the US government, Hispanic or Latino is defined as a person of Mexican, Puerto Rican, Cuban, South or Central American, or other Spanish culture or origin regardless of race. The Hispanic population is a young, large, and fast growing group united by a common language and ancestry. For institutional investors, the large, concentrated, and growing Hispanic communities provide substantial investment opportunities in the retail and housing sectors. While ethnic preferences have minimal impact on office, industrial, and hotel demand, they do impact retail demand and housing choice.

Hispanics are now the largest and fastest growing minority group in the United States. Expanding at an annual rate of 4.4 percent since the end of 1990, the Hispanic population now numbers 42.4 million, representing about 14.3 percent of the total population. This rapid increase is expected to continue, accounting for about 45 percent to 50 percent of US population growth going forward.

The potential of Hispanics to shape the future of the American consumer landscape is immense. Not only is the population of Hispanics increasing, but their disposable income is expanding as well. The impact of growing Hispanic wealth will be more apparent in select states and metropolitan areas where Hispanics already constitute a large and growing share of local demographics. Big Hispanic markets, such as California, Texas, Florida, and Illinois, have a strong and rapidly expanding demand for Hispanic-focused retail and residential properties.

PROFILE OF A PEOPLE

Exhibit 1 shows the US population by race and ethnicity. By 2000 Hispanics had replaced African-Americans as the largest minority group. Today the Hispanic population in the United States is roughly 40 percent of Mexico's total population and it has surpassed the population of Spain and will be larger than the combined populations of Spain and Portugal-the origins of Latino culture-in five years. Their rapid growth trend is expected to continue well into the forecast, reaching 60 million by 2020.

As Exhibit 2 shows, the US population is projected to grow by 26.7 million to 28.4 million per decade until 2040, according to the US Census. Given the uncertainty of any projection, an annual population growth of 2.5 million to 3.0 million is likely for the next 20 years. The Hispanic share of this growth will range from 45 percent to 50 percent, translating into 1.1 million to 1.5 million additional Hispanic people per year over the next two decades. The current status of the nation's largest minority group severely understates the future influence of Hispanics on the US economy, as nearly one in every two new Americans will be Hispanic.

According to the US government, Hispanic or Latino is defined as a person of Mexican, Puerto Rican, Cuban, South or Central American, or other Spanish culture or origin regardless of race. Yet despite these diverse origins, the 2004 American Community Survey reported that people of Mexican origin formed the majority (64 percent) of US Hispanics (see Exhibit 3). This dominance stems from Mexico's proximity to the United States. Historically, Mexicans composed a large share of immigrants to the United States, a trend that climaxed in the mid-1990s during the Mexican Peso Crisis. Overall, immigration has been the primary force behind Hispanic population growth, peaking in 1999 with 500,000 immigrants.

While immigration continues to expand the US Hispanic population, births to the second generation will eventually become the main driver of Hispanic growth. This trend is a product of high fertility rates among Hispanics along with a relatively young age structure. In 2000, the Census Bureau reported that the median age for Hispanics and the total population was 26 and 35, respectively. Exhibit 4 illustrates the Hispanic age structure compared with the total US population. Clearly, the Hispanic age structure is bottom-heavy meaning a high concentration of youth with few elderly. On the other hand, the total population's top-heavy age structure shows a comparatively older population and a lower percentage of youth.

Another attribute of the US Hispanic population is a lower than average educational attainment (see Exhibit 5). According to the 2000 Census, only 52 percent of US Hispanics graduated from high school, whereas 80 percent of the total US population did so. Only 10 percent of Hispanics aged 25 and over earned at least a bachelor's degree, which is much lower than the national average of 24 percent. Among all US Hispanics, the Mexican subgroup had the lowest educational level, with only 8 percent completing post-secondary schooling. However, South Americans and Spaniards outranked the national average for completing a bachelor's degree, at 25 percent and 30 percent, respectively.

Although still lower than the US average, the educational levels of both the immigrant and US born Hispanic populations have improved. Since the 1970s, the share of US born Hispanics who graduated from college has increased from 17 percent to 35 percent, while the share for the immigrant group has nearly doubled, from roughly 9 percent to 18 percent. Thus, the educational levels achieved by Latino immigrants today are roughly equivalent to that of US born Hispanics 30 years ago. Yet even as the education gap between Hispanics and the total US population shrinks, Latinos continue to lag behind white students in terms of the difficulty of their high school curriculums and their standardized test scores. While college entry has significantly increased for Hispanics, they are still less likely to graduate than are white students.

Lower educational attainment results in lower median household incomes. Although Hispanics are the second largest group of US workers, their lower levels of education and experience lead to their concentration in low-skilled jobs. More than 30 percent of workers in private household services are Hispanics, who also form about 20 percent of workers in construction and other types of manual labor. Less than six percent of Hispanics have high-skilled occupations, such as law, computer related jobs, medicine or engineering. As a result, Hispanics earn about 32 percent less than the national average, with a median household income of $34,000 (see Exhibit 6).

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The most obvious feature Hispanics share is Spanish, which becomes less prevalent as people become further removed from the immigrant or first generation (see Exhibit 7). The decline of Spanish as the primary language indicates increased assimilation. The immigrant or first generation is by far the most Spanish dominant compared with newer generations of US Hispanics. Although Spanish remains a part of the Hispanic identity, younger people are more likely to consider English their primary language.

LOCATION PREFERENCES

Although Hispanic growth is occurring nationwide, select states are seeing much more growth than others. Traditional settlement states,1 where about 80 percent of US Hispanics live, include California, Texas, Florida, New York, New Jersey, Illinois, and New Mexico. In addition to these large, established Hispanic markets, Arizona, Nevada, Georgia, North Carolina, Oregon, Virginia, Washington, and Massachusetts all saw their Hispanic communities increase by more than 50 percent since 1990, earning them the designation of "new settlement states." Of these, North Carolina, Georgia, and Nevada experienced the strongest Hispanic growth, more than 200 percent, during this period. Exhibit 8 lists the top 20 states with the largest Hispanic populations.

Exhibit 9 shows the metro areas where Hispanic people constitute a significant share of the local demographics. The gateway cities of Los Angeles, New York, Miami, Chicago, and Houston have large multicultural communities. These five metropolitan areas rank the highest in terms of the absolute number of Hispanics; 41.5 percent of the total US Hispanic population lives in these five Metroplitan Statistical Areas (MSA). Hispanics are even the majority or super-majority in metro areas such as San Antonio, McAllen, and El Paso.

Hispanic population growth can be further pinpointed to select counties in each state (see Exhibit 10). As the map illustrates, large concentrations of Hispanic people mostly reside in the border regions and gateway cities, while dense Hispanic communities have also begun to develop in Washington and Colorado.

NEIGHBORHOOD CHARACTERISTICS

The tendency to live in neighborhoods dominated by similar ethnic groups is commonly perceived as an immigrant trait. About 43 percent of Hispanics indeed live in Hispanic-dominated neighborhoods, where non-Hispanics represent, on average, only 29 percent (see Exhibit 11). But about 57 percent of Hispanics choose to reside in nonHispanic neighborhoods, where they form no more than 7 percent of the local residents.

Large immigrant populations tend to flock to Chicago, Los Angeles, Miami, and New York because of their multicultural backdrops.Traditional Hispanic destinations, which include these four cities, have ready-made, Hispanic-dominated neighborhoods that act as cultural buffers for new settlers.

Exhibit 12 is a map of Chicago showing its Hispanic population. Since 1920, Hispanics have settled in Illinois. Between 1990 and 2000, the state added 650,000 Hispanics, with 92 percent settling in the Chicago area. About 55 percent of Hispanic growth occurred in Hispanic-dominated areas, while 37 percent was in non-Hispanic-dominated neighborhoods in the Chicago MSA.

In California, about 35.3 percent of the state's population is Hispanic, with growth in this large and stable community remaining substantial. Between 1990 and 2000, the Latino community added 3.4 million people, with 55 percent of the growth occurring in and around the Los Angeles area (see Exhibit 13). Most of this increase was in Hispanic-dominated neighborhoods. As in Chicago, Hispanic growth also expanded into areas outside the metre, where majority-Latino neighborhoods began to develop

In Florida, Hispanic growth was much more scattered than in other traditional settlement states. According to the Pew Hispanic Center, this may reflect the state's growing attractiveness to both domestic and international migrants. Exhibit 14 shows Hispanic-dominated neighborhoods in the Miami area. From 1990 to 2000, Florida added 1.1 million Hispanics, with 45 percent of this growth in the Miami MSA and the rest outside the metro in non-Hispanic neighborhoods. Only 32 percent of Hispanic growth in the Miami MSA occurred in Hispanic-dominated neighborhoods.

New York's Hispanic growth pattern was similar to that of Chicago (see Exhibit 15). From 1990 to 2000, 713,000 Hispanic people moved to the area, with almost 91percent of the growth occurring in the New York Primary MSA. As in Chicago, neighborhood distribution of Hispanic growth was roughly equal, with 41 percent living in nonHispanic-dominated neighborhoods. Hispanic growth also drove the development of Hispanic-dominated communities in new areas while simultaneously expanding existing Hispanic-dominated neighborhoods.

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RETAIL OPPORTUNITY

The population growth of Hispanics is also reflected in their rapidly rising aggregate disposable income. By 2005, US Hispanics are expected to control about $736 billion of disposable income, which is projected to reach about $1.1 trillion by 2010 (see Exhibit 16). The growth rate of Hispanic purchasing power is likely to be more than 8 percent annually for the next 10 years, outpacing the US average by a large margin. Because of above average growth, the Hispanic share of US disposable income rose from 5.0 percent in 1990 to 8.1 percent in 2005 and is likely to reach 9.2 percent in 2010.

Exhibit 17 lists the states with a large share of total Hispanic disposable income and the forecast growth rates for the next five years. The top five states have two-thirds of Hispanic purchasing power, and the top 10 account for 81 percent. Large Hispanic neighborhoods in the biggest markets provide many opportunities for retailers. Not only are these neighborhoods underserved by current retail establishments, they may be even more underserved in the future, as their growth rates are much faster than the pace of development occurring in large Hispanic-dominated neighborhoods.

HOUSING CHOICE

The synthesis of traditional and modern values is an age old quality of US Hispanic families. In areas where Hispanic people are fast becoming the majority of the local demographic, Latino styles and tastes are gradually redesigning existing structures or are influencing plans for new developments. This phenomenon is particularly evident in states such as California and Texas, where a large percentage of the populace is Hispanic. Here, the Hispanic affinity for social interaction and the group's adaptability has given rise to a so-called "Latino new urbanism."2

New urbanism is a response to suburban sprawl. According to Mendez, "Latino new urbanism is a movement toward the development of more compact neighborhoods with residential developments that include small lots, short housing setbacks, alleys, front porches, walkable neighborhoods, efficient transportation, and many public spaces and parks." In a Public Policy Institute of California survey, 51 percent of Latinos in the state declared they would rather have a small home and a short commute. Furthermore, 56 percent of Latinos would rather live in mixed use neighborhoods, where they could walk to local amenities.

The Hispanic preference for living in such neighborhoods often coincides with lower homeownership rates, because owning a home often means relocating to the suburbs. Exhibit 18 shows a comparison of homeownership rates between Hispanics and the total US population. According to Census 2000, a 20 percentage point gap existed between the homeownership rate of Hispanics and that of the nation overall. The booming housing market over the last five years has increased the homeownership rates of all racial and ethnic groups, but the Hispanic gap has persisted. The lower homeownership rate among Hispanics reflects a lower income level, more new immigrants, and a younger age profile. The lack of products that cater to their income and location/design preferences may also contribute to a lower homeownership rate for the US Hispanic population.

As with any group, culture and traditional values play a major role in determining individual behavior. Hispanic culture places much emphasis on the family. Therefore, Hispanic families often include grandparents, aunts, uncles, and cousins in their households, thus contributing to a larger than average household size. Exhibit 19 compares Hispanic family household size with that of the total US population, showing that Hispanic families are generally larger than the average US household. At the far end of the spectrum, about 10 percent of all Hispanic households include seven people or more, while only 3 percent of all US households do. About 31 percent of all Hispanic households include five people or more, compared with only 12 percent of all non-Hispanic white households.

CONCLUSION

The Hispanic population is a young, large, and fast growing group united by a common language and ancestry. Although concentrated in key gateway cities and border states, Hispanic people are moving into new regions, such as North Carolina, Virginia, and Massachusetts, which all have booming Hispanic communities. Towns and urban areas are gradually incorporating the cultural flavors characteristic of Latin American heritage and urban planning, while the growth of the Hispanic population's disposable income is further enhancing their influence in all sectors of the US economy.

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For institutional investors, the large, concentrated, and growing Hispanic communities provide substantial investment opportunities in the retail and housing sectors. While ethnic preferences have minimal impact on office, industrial, and hotel demand, they do impact retail demand and housing choice. Strong pent-up demand already exists for Hispanic-focused retail and for-sale and for-rent housing that incorporates Hispanic preferences. Although Hispanic-focused investments are still a niche by size, the US Hispanic population will increasingly impact all market participants, as nearly one in every two new Americans will be Hispanic.

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