As millennials have transitioned from campuses to the workforce, commercial real estate has felt its impact, as a walk through any high street will attest. However, distinctions should be made between the younger and older segments of this generation. The older cohort has already considerably shaped trends in shopping. They are now reaching, or have reached, the age at which most are facing typical ‘grown-up’ life decisions. The younger millennials will drive demand not only for retail, but for apartments, office and even warehouse space in potentially different ways. After analyzing older and younger subsets of millennials, TH Real Estate has identified distinct investment opportunities based on their differences.
This category are those roughly 30-36 years old. They are largely renters, perhaps in urbanized areas, who have recently made major life decisions such as marriage and first child, and are likely considering home ownership. Despite the high cost of living in many dynamic cities of tomorrow, we assume that most are in a stable enough financial position to afford a home in their current metro areas, having worked roughly ten years.
Surveys indicate that amenities such as walkable retail, dining and entertainment options, as well as close proximity to a train station are highly important to this group. While many are likely to continue commuting to central city-based jobs, we believe that suburban retail and office properties in appointed metro areas could represent a compelling investment opportunity.
Those under the age of 30 prefer to stay closer to the city centers and will drive demand for retail and even warehouse space. Having just recently completed college, they will likely rent for the next seven to 10 years and be more cost-conscious. There is likely to be an additional benefit to the retail sector where tech-related employment nodes offer interesting opportunities for mixed-use and lifestyle shopping center investment.
The traditional car-dependent suburban tech clusters such as Research Triangle Park in Raleigh, Durham may undergo significant redevelopment into an urbanized science park in recognition of the need for retail, restaurant and housing options to co-exist in an integrated fashion.
Using big data to see tomorrow’s world
Using data to study the movement and behavior of people can help identify tomorrow’s cities: those best positioned to benefit from megatrends such as urbanization, technology and demographic shifts. Our research indicates that both older and younger millennials will eventually migrate to the suburbs of either the metros they currently live in such as Seattle, New York or Boston, or to the suburbs of more affordable metro areas with favorable job growth such as Austin, Salt Lake City or Las Vegas.
The impact of lifestyle choices on US cities presents varying investment opportunities, depending on each community’s job growth prospects, affordability and commercial property landscape. While aging and often overlooked cities such as Hartford, Pittsburgh, and Kansas City may offer more limited investment opportunities, following the millennials and technology growth affords investors a unique opportunity for revitalization and redevelopment.
Watch this space
Longer term, the sector should keep a watchful eye on Generation Z, largely the children of the smaller Gen X (those aged 37-54). Research on this generation is only just beginning, but indications of divergent preferences compared to millennials are emerging, which will further impact commercial real estate as soon as five years from now when the youngest leave college and begin entering the workforce.