The Millennial Factor
- Oct 22, 2014
The impact of Millennials on commercial real estate sparked a thought-provoking discussion at the Institute of Real Estate Management’s Fall Leadership Conference last week.
“We are in the midst of a sea change . . . and I think it’s probably as revolutionary as in the 1960s, when the open office was introduced into the United States,” said the panel’s moderator, the veteran real estate journalist John Salustri, as he introduced session on Friday.
In many ways, Millennials are leading the revitalization of the nation’s urban cores. Between 2008 and 2011, the number of Atlanta residents age 18 to 34 doubled, said Patrick Lynch, research and development manager at the George Washington Center for Real Estate and Urban Analysis. “At least in a few markets, we can say that sprawl is ending, or at least that sprawl has peaked,” Lynch added.
A renewed appeal for the visibility and prestige offered by a presence in the central business districts is also contributing to the renewal of office markets and relative decline of the suburban office sector. Cap rates in Boston’s core urban markets were in the 4 percent to 5 percent range, considerably tighter than the 6 percent to 7 percent rates typically found in Boston’s suburban submarkets, Lynch said.
Another major trend emerged from the recession as clients began about using real estate to integrate Millennials into the workplace, said Marc Allen, a Dallas-based principal in Transwestern’s project management practice. Rather than viewing space primarily as an operating expense, office users “started looking at (real estate) as a tool to accelerate their business growth.” In that respect, office space has become for recruiting and retaining young workers.
Though Millennials are sometimes depicted as averse to home ownership, the panel offered a more nuanced view. “They value home ownership—they’re just not in a place yet where they can do it,” said Richard Matricaria, vice president & regional manager of the Tampa and St. Petersburg regions for Marcus & Millichap Real Estate Investment Services Inc. “Sometime between 2015 and 2020 is probably when Millennials (will) start to buy homes. For the time being, there’s going to be a huge demand for rental housing.”
Matricaria, who supervises a number of young workers, said that members of the Millennial generation “value smaller quarters, but places that are close to everything.” That, in turn, fosters the live/work/play environment that is a byword in urban centers.
Also influencing household formation, and therefore the residential market, is Millennials’ distinctive habit of marrying late. Only half of Americans today are married by age 35, down from 80 percent in 1980, Lynch noted. And the portion of married 26-year-olds has dropped from 60 percent in 1980 to about 30 percent.