How Will the Millennials Affect Real Estate Development?

Any one you know?

Rents in the city–prefers a “walkable” neighborhood; single, no children but spends freely on a beloved pet; may not own a car; sleeps with cell phone.

Millennial 1From delayed home buying to perpetual telecom connectedness, the preferences of the Millennial Generation have been well documented. But what affect will this generation’s habits have on our habitats in the coming decades?

I recently delivered the keynote address on this topic at the annual meeting of the Mid-Atlantic Real Estate Marketing Association. Here is a partial summary of the address:

The Great Delay: A New Normal or Temporary Adaptive Behavior?

While many propose that Millennials’ tendency to delay marriage, home buying and children may be a permanent alteration, I predict that the Great Delay will dissipate over the next three to five years.

While Millennials’ behavior related to technology dependence, work-life balance and affinity for change are likely New Normal, I strongly believe that lack of participation in home ownership, marriage and child-rearing are temporary behaviors that will revert to the Old Normal as the effects of the Great Recession, tight lending standards and high student loan debt begin to recede.

In fact, survey data (Pew and ULI) provide evidence that home ownership remains an aspirational goal for 75 percent of Millennials. I do offer one caveat.

A particularly ominous mitigating factor is that as marriage and dual parenthood collapse for low and even moderate income members of the Millennial generation, success may mean selling only to the very low and very high ends of the consumer spectrum—a situation that will impact the real estate industry.

Millennial Impact on Office Development

In the National Capital Region, a variety of urbanizing areas will benefit from Millennial preferences. Office development opportunities will be linked to Millennial migration as tech companies and other firms move from suburban to urbanizing locales to follow them. Additionally, growth is likely to occur in edge cities–places like Tysons Corner; older inner suburbs like Silver Spring and Bethesda; suburban and life style town centers like Reston and Fairfax Corner, and even exurban communities like One Loudoun.

Among the opportunities:

  • Building New Look office buildings in Millennial-rich urban sub-markets dominated by old style interior buildings. A national trend with a strong presence in the National Capital Region, New Look offices reduce the floorplate and delete individual offices in favor of space that is open, light and flexible enough to accommodate gathering, sharing and collaboration.
  • Gutting and rehabing B and C office buildings to transform them to New Look properties in urbanizing sub-markets
  • Repositioning old industrial buildings for hi-tech tenants who are migrating away from suburban office locations.

Possible threats:

  • It is possible that we may be over-estimating Millennial urbanity. When the Demand Institute asked Millennials where they would prefer to live next, 48% said suburbs and 38% said urban locations.
  • Suburban office parks far from transit and amenities are becoming obsolete. Repositioning these buildings, although challenging, will be a future niche market.
  • Average office space per employee is shrinking. Millennials’ connectedness and willingness to share spaces or work from home will continue this trend and further erode demand for new office development.

Impact on Retail Development

As America’s largest generation (an estimated 80 million or 25 percent of the U.S. population), Millennials will be the new pig through the python, influencing retailing at every stage of their life cycle.

Just coming into their own in terms of purchasing power–$600 billion spent annually now; $1.4 trillion by 2020–Millennials will have a strong influence on consumer demand. Surveying existing industry research, I outline seven potential areas of retail opportunity for developers and brokers:

  1. Price-sensitive: value-oriented retailers (e.g. dollar stores, consignment shops, drug stores)
  2. Seamless shopping: retailers who create a fluid experience from online research to mobile apps to in-store purchases
  3. Experiential retail: Shopping that entertains—locations with strong food, entertainment (movies, bars) and recreation (sports clubs, virtual sports) options
  4. Co-located retail: Mixed use projects satisfying Millennials’ walkability preferences
  5. Organic design: “Main Street” instead of big boxes and stand-alone shopping centers. The trick is to combine Main Street with boxes in organic designs.
  6. Change to engage: Pop-ups, rotating signage, in-store kiosks
  7. Attention to Millennial values and beliefs: For example, while preference for walkability may predict weak spending on goods like auto parts, opportunities may grow in spending on bikes and pet-related retail.

As the best and brightest Millennials migrate to cities and their favored neighborhoods, and as they attempt to structure more balanced work-life employment, opportunities and threats have appeared in the commercial and residential markets. If you can predict what our young Millennial families will do, you will have a good understanding of how our real estate industry will fare over the next 15 years.

See the full report for details on Millennial demographics and their impact on the industrial, hotel and residential sectors.

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Bob Wulff

I am director of George Mason University's Center for Real Estate Entrepreneurship and MS in Real Estate Development. I have more than 35 years of Washington, D.C., area real estate industry experience. Most recently, I served as senior vice president at B. F. Saul Company where I was responsible for acquisition and development of projects for the firm's $6 billion real estate portfolio. I also served as executive vice president at Hazel Land Company and vice president at The Peterson Companies. I've spent time as an investment banker with Smith Barney Harris Upham Company in New York City in their corporate finance division and also served as deputy development director at the U.S. Department of Housing and Urban Development (HUD) in the UDAG program.

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