Economy Watch: Rising Tide of Millennials & CRE
- Jan 30, 2015
If you define “Millennials” as Americans currently between 18 and 35 – those born between 1981 and 1997 – then this is the year that the number of Millennials will exceed the number of Baby Boomers, which for this purpose are people born between 1946 and 1964. Those definitions and that calculation was done recently by the Pew Research Center, using data generated by the Census Bureau and the U.S. Department of Health and Human Services. It should be noted that not everyone, not even everyone who specializes in statistical analysis of demographic data, defines the two generations this way, though the consensus for the Baby Boom is better established. Still, it’s an interesting tabulation, if only to illustrate how a large, young generation has come of age in the United States. As widely suspected in the industry, this is bound to have an impact on commercial and residential real estate.
As of last year, the number of Millennials (using the above definitions) totaled 74.8 million, and while no more of them are being born, as a group they’re still increasing in number because of immigration. This year, according to Census Bureau projection, Millennials will edge up to 75.3 million and become the biggest group—outnumbering Baby Boomers, who will number 74.9 million. The Baby Boomers have reached an age at which there are fewer immigrants than there are people in the cohort dying (immigration is generally a young person’s game). That isn’t going to change: the Boomers will continue to wither away in the coming decades, while the Millennials still have a good deal of growth ahead of them. The Census Bureau predicts that the cohort won’t reach its maximum size until 2036, when it will number 81.8 million (assuming immigration trends hold out, and there’s no major catastrophe, such as a meteor strike or the return of a 1918-like flu). The Boomers peaked quite a while ago: 78.8 million in 1999.
What does this mean for real estate? The Baby Boom meant first an expansion in schools, and later sustained growth in all kinds of properties—apartments for young Boomers, new malls, and new office space for the influx of workers from the 1970s to the 1990s, which was augmented by the social change among this particular generation that saw women enter the workforce in large numbers. And, of course, since this generation is still quite large, its impact continues: no one doubts that whatever else happens, the demand for healthcare facilities and housing tailored for the elderly is going to rise through the rest of the 2010s and the 2020s at least.
As yet, the impact of the Millennials on real estate is still largely a matter of conjecture. The leading edge of the generation is established in the workforce—though they’ve had a tougher time of it than anyone since the 1930s—and visibly having an impact on office space usage and design. For one thing, their adeptness with communication tech means that more workers can share less space, accelerating an office densification trend that’s been going on a while (and which cost-conscious employers don’t seem to mind). That squeeze might have gone as far as it’s going to, however, since no one’s predicting that office space is going to become completely obsolete. Also, the cutting edge of design includes more on-site amenities, though that too isn’t an absolute trend. A tech office in Seattle or even an insurance brokerage in Omaha will probably sport more employee-friendly amenities in the future, say, than a call center in Tuscaloosa.
As for retail, the appetite for online purchases is more pronounced among Millennials than their elders, which is a headwind for that property type. On the other hand, various studies show that the generation isn’t going to give up on the social experience of going out to shop, but they are going to be more tech-enabled when they do. Retailers who figure out how best to sell to this generation – and there’s no consensus on strategy yet – stand to do very well.
Finally, the biggest beneficiary of the Millennial budge so far has, of course, been the apartment industry. Doubly so, since the recession hit around the time that the generation was starting to form households. For many, apartments were the only option beyond their parents’ house. But perhaps more importantly, the psychological shock may have persuaded Millennials to delay homebuying, even if they can afford it. That may or may not really be the case, but apartment developers are wise to try to cater to this generation as long as possible—such as by adding the kind of amenities that they experienced when they lived in student housing.