Amid some of the stereotypes of this generation, there’s more to the Millennial generation than being obsessed with smartphones, social media and technology in general. They are the last generation to remember a life before the internet, and they’re certainly not going back into the dark ages. It’s important to understand this age group because their likes, dislikes, and preferences will now hold a lot of sway concerning the future of the real estate industry.
Born between the years of 1980-2000 and totaling nearly 80 million Americans, Millennials, also known as Generation Y, comprise about one-third of the total population. As they are entering the workforce, Millennials will make up 75 percent of the workforce by the year 2025 and are expected to have a significant impact on the future landscape of how we do business. With ease and efficiency as their top priority to pursuing their ambitious career goals and with the ability to work, live and play essentially anywhere at any time, here are the four real estate markets this generation will prove to have a profound effect:
Compared to older generations, Millennials show a marked preference for living and working in cities or urban suburbs. For the millennial employee, work isn’t necessarily a place. It’s an activity that can happen in nontraditional places like coffee shops or the outdoors and there are no set hours when work takes place. Millennials also place a high value on collaboration and social connections which have been a big factor behind the move to smaller more open or shared office spaces. As the need declines for isolation by eight-by-eight white-walled cubicles, so does the average space needed per person, which is a growing trend expected to continue. The modern workspace will include more common spaces for interaction, plentiful infrastructure to facilitate their use of digital tools, on-site amenities such as daycares, gyms and game rooms, and dense mixed-use walkable neighborhoods. These factors, among others, will change the way office spaces are used and how much space is required.
While Millennials are too early in their careers to invest in commercial real estate, they have made their way into positions of influence, especially in the retail sector. Currently, Millennial annual spending is an approximate $600 billion. In four short years, as they continue to enter the workforce, they are expected to be responsible for as much as $1.4 trillion in spending per year, representing approximately 30% of total retail sales. While they still prefer to shop in-store versus online, this extremely cost conscious generation will use their tech savviness to research prices, features, and deals which will lead to an increasing trend toward discount retailers as millennial shoppers have gravitated away from high-end, luxury retail.
The most impact where the tech-savvy, online shopping generation will have in the commercial real estate industry is the industrial sector. While studies show that Millennials have a preference for in-store shopping, many still rely on e-commerce. Currently, approximately 59 percent of the country’s population shops online; Millennials a generation raised on technology, encompasses the majority. With the rising demand for online shopping, comes an increased demand for industrial distribution and fulfillment centers. An estimated 30 percent of the U.S. industrial big box demand has a direct correlation to increased e-commerce. This market is not expected to slow down anytime soon.
Previous generations viewed homeownership as a way to build stability, wealth, and equity. The Millennial generation is renting longer, and homeownership is not as important to them. They are also getting married and having children later, which tends to delay the move to purchase a home. Millennials are also very serious about the environment and the impact of big homes and driving long distances to work. They want to live close to urban areas where there are jobs and shorter commutes. You will find they will often compromise square footage for the level of features such as rooftop terraces, walking trails and common spaces. As a result, new apartment complexes are on the rise that cater to the Millennial crowd offering units that are smaller in size, but located within communities that are rich in amenities and high-tech features.
Looking ahead, the real estate industry must plan for the surge of young adults entering the workforce and about to start families. The Millennial population is projected around 75.3 million, surpassing the 74.9 Baby Boomers. This population takes the rank as the nation’s largest living generation. Keeping tabs on this demographic over the next several years will give many investors a leg up to be prepared for the shifting demands of the future real estate marketplace.