reprinted from the Shenandoah Valley Business Journal
Millennials are different, and they’re changing commercial real estate.
Born between 1978 and 1999, this generation has had constant access to technology; has been influenced by tragic events like 9/11, Columbine, and multiple wars; and was shaped by substantially increased parental involvement.
All these factors have shaped their attitudes and preferences into a philosophy that is different than preceding generations.
The influence of these wants and needs is becoming more visible as offices continue shrinking; retailers are contending with a barrage of newer, smaller tenants; and multifamily owners are adding amenities that would normally belong in a gated community.
The Generational Mirror
Commercial real estate has always been driven by the needs of preceding generations. Many retail brands cater to Baby Boomers’ status sensitivity. Traditional closed-plan offices serve the Mature’s desire to quietly get their jobs done.
The funky workspaces of the dot.com era were a direct reflection of Generation X’s rebellion against their parents’ norms.
Now, it’s the Millennials’ turn — and some of the changes will be radically different.
Local And Online Become One
Perhaps the most radical shift resulting from Millennials will be seen in retail.
Largely, the generation is individualistic while maintaining hyperconnectivity. The combination may produce a constant churn of new popular brands to which these consumers are fiercely loyal, but only for a short period of time.
Many expect this to result in reduced sales for major brands, the creation of more niche brands and continued growth of online retail. The trend should be fueled by 3-D printing technology that offers mass customization as the new standard for an assortment of products.
In a word, expect fragmentation.
As already has been widely reported, Millennials shop differently, too. For them, ecommerce and brick-and-mortar are one and the same. Over 50 percent of the generation go online to research what they’re about to buy in a store and go to the store to figure out what they’re going to order online.
Some traditional retailers are succeeding by embracing in-store technology and providing compelling reasons to buy now. (For more visit: timreamer.com/retail.)
The Incredible Shrinking Office
Millennials don’t do cubes (or at least don’t prefer them), and it doesn’t seem they care about private offices. Typically, the optimal office for this workforce combines open workspaces with multiple places for small impromptu meetings.
Areas that were traditionally unproductive, like break rooms, may become a point of focus within the office, and conference rooms are shifted to shared common area space.
All this means the office space that has been shrinking in size for several years will continue to shrink well into the future. Standard office sizes were 225 square feet in 2010 — they are 160 square feet now, and the goal is to make them as small as 100 square feet.
That is, in an environment that wants an office space. Simply, the days of filling large office buildings with ease may be coming to an end … for now. In the foreseeable future, it is largely expected that this trend will cause office rental rates to stagnate and absorption of space to slow.
Imagine what will happen and how small offices can become in a collaborative environment without walls.
Locally, we are seeing demand for these preferences downtown. Take a quick glance at the new offices that have been created over the last year. KlineMay opened a downtown office without dedicated offices, Blue Ridge Architects built out space on Bruce Street with a very open and transparent concept, and the Ice House project is expected to deliver both.
It doesn’t stop there: The “small concept” is in full force, driven by both preference and economics. One- and two-person startups are seeking trendy 400- to 1,200-square-foot workspaces for their businesses within downtown Harrisonburg to create a convenient work/life balance that combines the office with nearby restaurants, activities and living quarters.
To this point, we have not been able to create this space quickly enough in downtown Harrisonburg to keep up with demand.
Flight To Urban Areas (And Urban Amenities)
Millennials are the first generation to pull away from driving. Statistically, they have fewer driver’s licenses and cars than Generation X’ers or Baby Boomers.
Given this fact, it might not come as a surprise that they also prefer city living (or at least the amenities and feel of the lifestyle). While a Generation X’er or Baby Boomer might choose the suburb of a major city, Millennials’ idea of a compromise is living in the core of a secondary or tertiary city.
For example, Houston saw a 70 percent increase in multifamily housing permits in one year, driven by this demand. As you may have noticed, Harrisonburg has seen its relative share of demand for housing within the downtown environment as hundreds of new apartments have been created over the last five years.
If you think it’s all student driven, you’re wrong. It’s the same 20-somethings that are creating new businesses, events, and vibrancy.
Reason For Optimism
Millennials are too complex to encapsulate in a few paragraphs and several sweeping generalizations.
For many more reasons than outlined above, this is an exciting generation. One that seems to be coming of age in a period where technology and innovation matches skills and desires, which should prove a powerful combination.
Prior generations have impacted the world of retail, office layout, multifamily building design and community planning, but Millennials may prove to have the greatest opportunity for long-term change.
Well-wishes from an X’er.
Tim Reamer provides commercial real estate brokerage and consulting services with Cottonwood Commercial and specializes in investment property (multifamily | commercial | NNN), retail/restaurant site selection, and commercial buyer/tenant representation. Learn more at www.timreamer.com.