There has been a lot of financial attention paid to the Baby Boomer generation (those born between 1946-1964), who are between the ages of 52 to 70 as of this writing. And rightfully so. Nearly 50,000 Baby Boomers are retiring every day and will continue to do so over the next 20 years. It is easy to measure the Baby Boomers’ economic impact by today’s standards as we watch the massive rush toward accommodating this demographic. Medical campuses, hospitals, doctor’s offices, and pharmaceutical companies all have the Baby Boomers firmly in their sights. We are already seeing investors raising pools of capital to invest in locally-based developers around the country that are focused on age-restricted, assistive care, and congregate care facilities. This is a thriving industry that will see massive consolidation over the next 20 years. Wall Street will definitely figure out a way to be much more involved at some point and soon everyone will be able to invest in the Baby Boomer boom.
But a more interesting investment demographic that has yet to emerge is that of Millennials, or Generation Y — those 87 million people born between 1977 and 1996. Millennials are now between the ages of 19 and 38, and soon all of them will be entering adulthood. In 2015, they comprised about 36% of the workforce, and by 2020 that percentage will be up to 50. So it would be wise to take note. When a demographic emerges that comprises half of the workforce that will be consuming, producing, and investing, it is vitally important to understand what they are all about, what they like, and what they might be doing.
Millennials are a byproduct of the shifting lifestyles of the Baby Boomer generation. Like the Greatest Generation, they have been shaped by historical circumstances within their age cohort, and they have been impacted deeply by social and technological breakthroughs. They are connected 24/7 and approximately 85% of them own a smartphone. This demographic has been the most studied, coached, pampered, over-scheduled, and protected generation in our lifetime.
Millennials are multitasking experts, never far from their precious technology, who viscerally care about personal branding. 80% of them sleep with the cell phone next to their beds. They cherish a balanced life and are not as motivated to get to the top as their Baby Boomer parents. They grew up with more but saw many of their parents’ wealth come crashing down during the Great Recession. As a result, they are questioning the 60-80 hour a work week and this slow economic recovery. They are upset with the lack of career options post-college, global uncertainty, and the unprecedented rise in the national debt (which they will have to pay). These are all things that will shape this generation.
As I said, the Millennials cherish a balanced life. They eat, shop, and learn collaboratively using the frequent feedback that is now normal via constant online connection. They possess a transactional relationship with almost everything, including education, and they will be among the most entrepreneurial in recent history. This demographic was told by their parents that they can do anything they want to and be anything they want to be; yet they have been burdened with student loans, auto, and credit card debt as they moved into very rough economic times and an even tougher job and career market.
Under this demographic unrest, the crime rate and entitlements will decline. This is a social-based generation, with grand aspirations of saving the world. Breaking the perceived cycles of despair and poverty may just be accomplished. Furthermore, Millennials want to be (and already feel) entrepreneurial mostly because they did not immediately fall into careers and they grew up on technology. They seek ways to express their creativity and rely on digital technologies to guide and govern their lives.
With respect to Millennials and the real estate industry, the ensuing opportunities will pose both opportunities and challenges. The tsunami of real estate possibilities has already begun to show its impact and enormity. From the mercurial rise in the multifamily assets and revitalized retail sector to new workplace environments, the causation impacts have arrived. It is imperative that the top brass of the various real estate organizations completely understand this generation and be flexible in the change that will be required to accommodate the soon-to-be most dominant generation in the United States.
As of today, at least 50% of Millennials rent, and 25-to-35% live with their parents (there are various conflicting studies on this, but regardless, it is a huge number). The primary reason is that this generation has been burdened largely with both student loan and credit card debt. The average student loan debt is about $45,000, and of the combined $1.2 trillion in student loan debt, only 37% is paid on time. Thusly, Millennials are falling behind financially. So it’s not surprising that they are delaying starting families or postponing major expenditures, like home-ownership. Until this generation can get on its feet, pay off some debt, and build for the future, you can be sure that they will be renting for a very long time.
From apartments to condos to single family residences, most Millennials rent first. Ironically, this is the best option for them, as it gives them both freedom and mobility. Urban and suburban mixed use will appeal to this generation the most, and they will sacrifice size for location, and pay more if the amenities and services allow them to recapture lost time while working or in transit. The long-term outlook is rosy for the residential rental market and the Millennials (and the succeeding generation) will sustain the multifamily industry for years to come.
The sector that will be in the most flux will definitely be retail. As I have discussed before, we are now in a cashless society, and Millennials prefer to interact with brands via digital channels. This is rather obvious today, but much like the demise of the newspaper, the travel agent, and the record store, many local retailers will go the way of the dinosaur unless they “adjust,” like Apple. Millennials feel very comfortable shopping online; they love to browse and prefer to do it from a cell phone, tablet, or computer. The online presence of retailers will have a continued negative and undermining effect on mall and store traffic. Grocery stores and pharmacies will do well, discounters will be successful, restaurants/food service will flourish, and themed centers will still attract shoppers. However, thousands of retail centers around the country will not survive. Over the next decade, Millennials will redefine shopping, more than any other generation in our history.
Millennials are not and will not personally invested in traditional office space. The challenge for the owners and operators of office buildings will be tied directly to their tenants. Millennials do not want traditional cubes or dedicated rooms; they want creative, open space where they can collaborate and socialize, as well as build relationships and careers. As a result, a new industry for office space is beginning to gain momentum: places like WeWork, Nextspace, Liquid Space, Hera Hub, co-Merge, Urban Hive, and others are forms of communal capitalism and are all growing rapidly. The office of the future will be a place to grow, not a place to simply work and store paper and files. Digital hubs and co-working spaces will become commonplace. Remember, in just 10-15 years, Millennials will be in charge of leasing decisions.
For landlords of core office buildings, many of these properties will be too costly to replace, and the combination of a lack of new office construction and more workers in less space will mean higher rent in the near future. More simply put, Millennials will transform the office sector in the next decade. So if you are a real estate professional, there are a couple things that you need to embrace within the next five years. The first is that we will have a serious talent shortage in real estate. Millennials who would typically fill this gap are just not ready (due to lack of experience and the interruption of their career paths). While Boomers are preparing for retirement, Millennials are still slowly preparing for adulthood. Millennials are not yet entirely independent and have relied on others (namely parents and technology) to solve their day-to-day problems and challenges.
Again, technology is key. It will be the big equalizer here, yet Millennials will also suffer due to their hyper-connectivity and digitally-dependent lives. They are very smart, yet easily distracted and will need to allocate and balance their attention and emotions effectively. And don’t forget, by 2020, “Generation Z,” now barely 18 years old, will account for 40% of all consumers. As the great Peter Drucker said, “The best way to predict the future is to invent it.” My suggestion to you is to just follow the numbers (Boomers, Millennials, Generation Z) and plan accordingly.