Millennials Top of Mind for CRE Execs
The question that comes up often in commercial real estate circles: Will Millennials, who have shown a clear preference for urban living, eventually pick up and move to the suburbs?
"In many ways, that's the $64,000 question," said Frank Cohen, senior managing director at Blackstone Real Estate Advisors and one of four panelists at a session titled, "Millennials and the Next Generation of Commercial Real Estate," at DLA Piper's Global Real Estate Summit on May 3, 2016, in Chicago.
The number of Americans ages 20 to 34 is up 5 million in the past decade – but the largest single age within that demographic is 26. Meanwhile, Millennials are marrying later in life, so if they flock to the suburbs, it won't be for a while, Cohen said.
None of the panelists claimed to know for certain where Millennials would eventually end up. But the massive generation's well-known tastes and preferences – walkability and mass transit, experiences over amenities, sustainable buildings – will shape commercial real estate for a long time, the panelists agreed.
Owen D. Thomas, CEO of Boston Properties, said the changes in the office sector are also driven by the economy – noting that most US job growth since the Great Recession has been in technology, life sciences and similar industries. But to attract Millennials, his company, which is one of the largest owners, managers, and developers of Class-A office properties in the US, focuses on "location, place and space," without ignoring amenities.
"You need to have amenities either in the building or be in a neighborhood where there are significant amenities," he said. "That could be health clubs, food amenities or, I would just say, overall energy."
Thomas also pointed to the need to be flexible. His company has buildings with traditional law firms on one floor and co-working tenants on the next.
Understanding Millennials isn't just a question for property owners and managers. Roy H. March, CEO of real estate investment banking company, Eastdil Secured, said his company has organized panels of young people within its own workforce "so we can help our clients think about the way Millennials are consuming goods and services."
"Basically, what it's created for us is an open workspace, not unlike what it is that we're seeing with tech firms," he said. "The collaboration doesn't just go inside the walls – it's outside the office."
Randall K. Rowe, chairman of Green Courte Partners, moderated the panel and asked what effect autonomous vehicles would have on development, particularly with Millennials' desire to be near mass transit. He noted that if autonomous vehicles are electric and low-polluting, it could make mass transit obsolete, as it is "expensive to build and maintain."
But Thomas said he believes the importance of mass transit will continue.
"I can't imagine it being fully replaced, particularly with the urbanization trend increasing density in a handful of major markets," he said. "The road infrastructure, I don't think exists. I think public transport is going to continue to be important."
Of course, there are some industries that have plenty of time before they face the Millennial question. For Debra A. Cafaro, chairman and CEO of Ventas, Inc., a real estate investment trust that primarily works in the healthcare industry, another demographic is top of mind.
"The near-term pig in the python is still the Baby Boomers," she said. "When we look at senior living, while the over-85 (year-olds) are our biggest resident group, the real opportunity in the near term is the Baby Boomers. We're really planning for them."