Born towards the end of the last century, millennials are having a great impact on the real estate market. They are renting longer, buying homes later, and living with their parents for much longer periods than prior generations.
By 2020 millennials will make up 50% of the global workforce. What they want in a work environment matters tremendously to future developments. They are also spending their leisure time differently than previous generations. They are spending more time eating out and shopping in retail centers. How future retail and dining establishments are constructed will change due to millennials habits.
How this younger generation will live, work and play will have lasting effects on the real estate market.
Live
Currently, almost half of all millennials live with their parents (49%). Half of that group had lived independently at one point, but decided to move back home, the so-called “boomerang generation.”[1] Millennials are taking longer than any other generation to leave the nest. 43% of those living with parents have plans to attempt to move out in the next three years.[2] The millennial generation has not found a new affinity for mom and dad they simply cannot afford to leave.
In some countries like, China and India, it is common practice for children to remain home until they are married. But in most countries, high property values coupled with steep rents and lack of suitable jobs means millennials are living at home longer than ever. However, there is a good portion of millennials who have managed to find their way out of the nest. Around 51% of millennials do live independently.[3] The big question is if they own a home or are renters.
Due to the high price of property, millennials have also been labeled as “generation rent.” Of those millennials living independently from mom and dad about a third are renters.[4] The majority of millennials who rent claim they rent out of financial necessity. Of the 13,000 millennials surveyed across 20 countries 55% do not expect to buy a property at their current point in life to due to unaffordability.[5] This is a huge shift in perception from previous generations. U.S. surveys confirm this shift in propensity to buy a home. Some 57% of U.S. adults believe buying a home has become less appealing. On the same note, 54% believe that renting has become more appealing.[6]
On average, millennials spend about one-third of their take home pay on housing. The West Coast of California sees the largest portion of millennial income spent on housing. Whether a millennial rents, or purchases a home, they spend the same amount on housing. This may seem strange but most millennials claim the large down payment to purchase a home is an obstacle, not the monthly mortgage payment. To fund home down payments millennials need to use funds from their savings, yet 33% need to borrow down payment funds from relatives. Support from “the bank of mom and dad” was much more common in Asia than other parts of the world (61%) but with high student debt burden on millennials, this pattern is growing in the US as well.[7]
Millennials do still want to own homes. Only 16% of millennials worldwide claimed they never plan to buy a home. But the delayed purchase decision is driving up the increase in long term rental stock, including SFR, Single Family Rentals which are now some 1/3rd of the rental stock in the US. While current rental stock is geared towards young adults, students and young professionals, there will be greater demand from older individuals and families looking for larger accommodations.[8] Rental properties in the future will need to satisfy a wide range of ages and individuals’ desires.
Work
One general preconception is that millennials are disloyal to employers and will quickly leave a job. After CBRE’s study of 13,000 different millennials in 20 different countries this myth has been dispelled. 62% of millennials worldwide see their career with the same employer or a small number of employers.[9] Millennials are not the job hoppers everyone believes them to be. They want to move up and get promoted but often with the same employer. One of the strongest employee magnets for millennials is working in an environment providing lifelong learning opportunities. This is so much so that they are willing to spend their own time and money on further training. Two-thirds claim the opportunity to learn new skills is a top factor when considering a new job.[10] They also want a healthy work and leisure balance – 56% say work time and leisure time should be separate.[11]
With respect to work environment there is another preconception that millennials want open and collaborative work spaces. This is generally true, but 42% of millennials still want their own private office, especially in North America where offices have become synonymous with status and higher earnings. [12] The open floor plan collaborative environment is still a good idea, but corporations need to be smart in how they implement this environment. The “cultural context” of the office defines how receptive employees will be to an office structure or an open floorplan. If you give them their own office on day one and the CEO sits in a big corner office overseeing everyone, do not be surprised if there is hesitation when shifting to a collaborative environment. Humans naturally struggle with change. This means corporations need to identify clearly what space arrangement is optimal for task fulfillment and stick with it. Those who already work in a collaborative environment enjoy it and would not want to give it up. Only 27% of millennials working in this collaborative environment would want a private office.[13] If corporations are looking to change to a collaborative environment it needs to be done well and consistently to succeed. Millennials, just like every other generation, need help understanding and adjusting to new environments.
Millennials do care about wellness in the work place, sustainability and the environment, but just like previous generations before them they are most concerned with pay and benefits. Salary and benefits were placed firmly as the most important factor in choosing a new job. 78% of millennials see workplace quality as important when choosing a new employer.[14] The quality of the workspace matters tremendously to millennials. One in four millennials would move to a smaller, less well known company for a better workspace.[15] Millennials also enjoy working in city centers, but are not opposed to moving to a location other than the center if urban amenities are available. 55% of millennials find small or medium sized towns “fairly” or “very” appealing.[16] Companies should take note of this as it means quality of the workspace could potentially trump location of the work site.
Play
Given that a significant number of millennials live at parent’s homes they have more disposable income to spend on leisure. 48% of their disposable income is spent on leisure.[17] This includes eating out, going to the movies and live entertainment events, and visiting shopping centers. Millennials in the Asia Pacific region also spend significant time on leisure activities, much more so than prior generations.
It is well established that more shopping is being done online, but the largest increases in online shopping have been from the older baby boomers. However, regional shopping centers and lifestyle centers are doing just fine, albeit with some tenant changes. CBRE’s survey demonstrates that the average millennial only does 10% of their non-food shopping online. The expected increase in the next three years is only 6 to 8 percentage points.[18] The truth is that millennials still like going to stores to buy products. They enjoy shopping in groups as a social activity, but most of all they like the ability to feel and touch whatever they are about to buy. 56% of millennials want to see a product before they buy it[19] and will do the vast majority of their product research online_ but if it is an unfamiliar item they prefer to purchase it in the store so they have the ability to ask questions and easily return the item.
The next big step for retail is the concept of “Placemaking”. The ability to seamlessly integrate retail, residential, and offices into one all-encompassing location. The important aspect of placemaking for retailers, and landlords, is to understand the role the store can play. “Successful placemakers diversify their tenant bases and move away from the traditional mix in favor of more service-oriented, high growth tenants that are less vulnerable to online penetration- such as food and beverages, and entertainment.”[20] Creating a highly connected and experience driven environment allows retailers to maximize millennial spend. They are shopping, dining, and enjoying leisure time in new and different ways than past generations. The more retailers can adjust and stay on track with the new trends millennials are putting in place the bigger benefits they will see.
[1] “CBRE Global Millennials Live Work Play Report” Nick Axford, Siena Carver, Natasha Patel, Jennet Siebrits, Richard Holberton, Julie Whelan, Andrew Phipps. (14)
[2] Ibid (14)
[3] Ibid (14)
[4] Ibid (16)
[5] Ibid (17)
[6] The MacArthur Foundation (2013) “How Housing Matters Survey” www.macfound.org/programs/how-housing-matters/
[7] “CBRE Global Millennials Live Work Play Report” (20)
[8] Ibid (22)
[9] Ibid (26)
[10] Ibid (27)
[11] Ibid (28)
[12] Ibid (30)
[13] Ibid (30)
[14] Ibid (40)
[15] Ibid (40)
[16] Ibid (42)
[17] Ibid (62)
[18] Ibid (56)
[19] Ibid (58)
[20] Ibid (69)
