How will Millennials Drive Commercial Real Estate Trends?

This is the first post in a two-part series about how commercial real estate should evolve to meet the needs of the millennial generation. Read the second post.

Today we examine how millennials drive commercial real estate

 

Born between the early 1980s and the late 1990s, the up-and-coming millennial generation has garnered a lot of attention over the last few years. Painted as living simultaneously in urban centers and largely online, there are three main characteristics of millennials that the market expects will drive commercial real estate trends:

1. Urban Renting as a Chosen Lifestyle

Millennials have been faced with high student debt, high unemployment in the wake of the recession, and subsequently, poor credit or the inability to meet home loan requirements. This has supposedly forced them into urban centers for employment, while they have had to delay marriage, raising children, and home ownership.

2. Moving away from Brick and Mortar Retail to Online Shopping

By 2020, millennials as an age bracket are expected to spend $1.4 trillion annually. Since many of the tech-savvy generation prefer to shop online, this will change the environment of brick and mortar retail centers, perhaps causing some shopping centers to become obsolete.

3. Millennials have a Different View of their Ideal Work Environment

Millennial workers have a different vision of the ideal work environment than their parents’ generation. They supposedly prefer urban settings with lots of restaurant, entertainment, and shopping amenities, while offices are designed to be more open and collaborative.

However, as much as has been said about millennials, there are only a few things we know for sure: as a group, millennials dislike their moniker as much as did Generation X, and the demographic is considerably more diverse than they are represented to be.

Take the average 29 year old. While the average American on the cusp of their 30s is imagined to be a hip, college-educated urbanite with a trendy loft apartment and a penchant for self entitlement, the truth is much more complicated. According to The Atlantic, these beliefs are skewed by the views from major urban journalism hubs in cities like New York and Los Angeles. In fact, FiveThirtyEight reports that for every 100 millennials between 25–29 moving into dense urban areas, 124 are moving out to the “suburbs” because of low incomes and urban housing shortages.

Even so, American Community Survey reports that home ownership for this generation is currently down about 8% from what it was for similar ages in 2001. This could be a product of millennials changing preferences in home ownership, but more likely it’s a reflection of higher student loan debt (with or without a degree to show for it), marrying later, and rising home prices that outpace earned incomes.

To determine how precisely millennials will drive commercial real estate trends, it may be better to look at the demographics on a local level than to extrapolate any assumptions from media profiles or national averages. However, regardless of in which direction the trends of millennials’ purchasing power and preferences are moving, there are a number of techniques the commercial real estate market will have to adopt in order to keep up with their digital preferences.

 

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