Millennials vs. Boomers: Real Estate Trends

Savvy real estate investors?must be keenly aware of demographic patterns in the areas in which they’re looking to invest – particularly as it pertains to potential demographic shifts. For example, is the population growing or expanding? Who is moving to an area, and why? What is the area’s median household income? These statistics are important as they shed light into who might be creating demand for the product type you’re seeking to invest in, and how that asset will perform over time.

In today’s article, we look at four different demographics: Baby Boomers, Gen X, Millennials and “Zoomers” and how each is having an impact on commercial real estate. Specifically, we note how each is creating waxing or waning demand for multifamily housing and why.

Related:?Why Is Real Estate a Good Investment?

Boomers

What’s a Boomer?

A Baby Boomer is the generation of people born between 1945 and 1964, a time that experienced a spike in births that is largely attributed to the ending of World War II. There are approximately 76 million Baby Boomers in the U.S.

Baby Boomers have a few notable characteristics. First, they are considered the largest consumers of traditional media such as TV, radio, magazines and newspapers. Baby Boomers were late to join social media, though roughly 90% now have at least a Facebook account. This generation has begun to adopt more technology to stay in touch with friends and family, but few are truly comfortable with social media to the same degree as the generations to follow.

Baby Boomers also tend to be keenly aware of their finances. Most benefitted from low-cost college degrees and/or jobs with pensions. They went on to buy homes at prices that were still considered affordable and have since?built tremendous equity?in these properties as a result. Baby Boomers are particularly cognizant of saving for retirement as life expectancies continue to rise.

Real Estate Facts

Baby Boomers are already having big impacts on the office and?multifamily real estate?segments. As it pertains to office, Boomers are delaying retirement or finding second careers, which continues to drive demand for office space.

Multifamily is another area where Boomers are having an impact. Boomers account for more than?half?of US rental growth over the past decade, and the number of renters over the age of 65 is expected to double by 2030. This is because Baby Boomers are finally looking to downsize. Although they’re selling their homes, Boomers still want to stay in the communities in which they currently live and have raised their families (or close by). In a recent survey conducted by Freddie Mac, roughly 8 in 10 Boomers said they’d prefer to be in an urban area throughout retirement, as long as that area is close to family and amenities.?

Real Estate Trends in 2022

There are a few key real estate trends to watch in 2022, as related to Baby Boomers. The first is what’s being called the “silver tsunami” of multifamily. As Boomers retire and downsize, many are going to be looking for apartments in?high-end apartment complexes. This will drive demand for amenity-rich apartment communities with upscale interiors and luxury finishes. Baby Boomers, like their Millennial counterparts, are also expected to pay a premium for concierge services such as dog walking and package delivery. On-site social activities will also appeal to this demographic. What’s more, real estate investors will appreciate that Boomers are less likely to seek rent concessions and tend to rent for longer periods of time.?

Related to this downsizing, there will be an uptick in demand for self-storage in 2022 driven by Boomers moving into smaller apartments and condos. Many Boomers have accumulated lots of furniture, heirlooms and other belongings to pass down to their children who do not yet own their own homes and therefore, self-storage is an interim solution.?

Let?Penn Capital?guide you through the real estate market, so you can invest wisely.

Gen X

What’s Gen X?

Generation X, otherwise dubbed “Gen X,” is the group to come after the Baby Boomers. They were born between 1965 and 1976. The “Gen X” label reflected the counterculture of a rebellious generation, one that was distrustful and interested in finding their own voice.

Gen X is one of the first to attend college en masse, and now carry some of the highest debt loads as a result. Gen X carries this burden while simultaneously paying their mortgages, raising children, and trying to plan for retirement. Gen X is more digitally savvy than their predecessors, so they’ll do some research and financial planning online, but most still prefer to do their transactions in person. They believe in hiring trustworthy professionals to steer their major financial decisions, from real estate brokers to CPAs to personal relationships with their bankers.?

Real Estate Facts

Gen X has largely been ignored by the media given that it’s a smaller segment than the Boomers before them or Millennials to follow. Gen X might be falling under the radar, but their impact on the real estate market should not be overlooked. Gen X was dealt a blow during the 2009 housing crash. Many lost their homes and as a result, had to move into rentals while they repaired their credit and found their financial footing once again. With a stronger U.S. economy, many are now looking to enter (or re-enter) homeownership. Gen X is particularly well positioned to do so, as they are now in their prime money-making years and more households have dual incomes than in generations past.?

Real Estate Trends in 2022

In 2022, expect Gen X to be in search of homes, whether to rent or buy, in areas with low crime and high performing school districts as their children begin to enter their school-age years. Given work and family demands, Gen X will also be looking for homes located within close proximity to their workplace as a way to reduce commuting times – even if it comes at a premium.

Even if a majority of Gen X’ers want to buy their own homes, there will still be some who cannot. Gen X’ers carry the most substantial amount of loan debt, with a median amount of $30,000. More than 50% of Gen X’ers have one ore more children under the age of 18 living at home, so family-sized rentals with multiple bedrooms and family-friendly amenities will appeal most to this demographic.??

Related:?How To Analyze a Commercial Real Estate Deal

Millennials

What’s a Millennial?

Experts have struggled to pin down an exact date range to represent Millennials, but generally, a Millennial is thought to be someone who was born between the early 1980s and early 2000s. Millennials, initially called “Generation Y,” have been dogged as an entitled generation whose “helicopter” parents handed them everything on a silver platter. To be fair, that’s an over-generalization that does not apply to many (perhaps, even most) Millennials—but the “entitled” label has managed to stick, nonetheless.

In truth, there are actually widespread differences between Millennials. Older Millennials, for example, did not grow up with technology to the same degree as younger Millennials. Some Millennials graduated college in the economic boom years of 2005-2007 or 2015-2019, whereas there’s a big group of Millennials who graduated college during the Great Recession and struggled to find work for years. Depending on where a Millennial fits within this spectrum, their attitude toward homeownership and?investing in real estate, more broadly, may vary drastically.?

Real Estate Facts

Millennials have dramatically altered the commercial real estate landscape. They’ve influenced real estate in many ways, from how they prefer to find?investment opportunities?(online) to their willingness to invest through crowdfunding platforms (also online).?

Consumer spending amongst Millennials also impacted commercial real estate. Take retail, for example. It was anticipated that in 2020, Millennials would have a collective spending power of $1.4 trillion. Yet Millennials are driven more by experiences than “things,” which has sparked the movement away from traditional, indoor shopping malls to outdoor, “lifestyle” centers that are heavily anchored by experiential retail, restaurants and activities.?

Millennials are also driving demand for multi-family properties, mixed-use facilities, and eco-friendly properties.?

Real Estate Trends in 2022

Millennials, many of whom have lived through the trough of the Great Recession and many of whom still have crushing levels of student debt, are not buying homes to the same degree their parents did in the past. Many are opting to live in apartments instead, particularly in their 20s and early 30s, prior to getting married, settling down and having children.?Roughly 50% of Millennials?who rent are spending 30% or more of their paycheck on rent each month, which has made it particularly hard for this generation to save for a down payment on a house (or investment property), particularly in recent years as property values have soared. For the foreseeable future, Millennials will continue to drive demand for multifamily housing.

That said, as Millennials continue to age and meet these important life milestones, experts have suggested Millennials with?begin to invest in real estate?– most likely residential before investing in commercial properties. As noted above, Millennials will place a great emphasis on sustainable design principles.?

Generation Z

What’s a Zoomer?

Generation Z, sometimes referred to as “Zoomers” or “post-Millennials,” is the current name for the cohort born between the mid-1990s through the early 2010s. This is a demographic who grew up with technology at their fingertips and who are most comfortable utilizing various forms of social media. Generation Z are often the children of Generation X. They have been dubbed the “snowflake” generation in reference to their perception that each is highly unique, delicate and prone to being less resilient than generations prior.?

Generation Z has been particularly influenced by the Great Recession. Many were coming of age during this time and witnesses the financial hardships faced by their parents. This includes job losses, foreclosures, and prolonged economic uncertainty. Generation Z is most likely to observe and feel the growing divide between America’s have’s and have-not’s.?

Real Estate Facts

All eyes have shifted from Millennials to Gen Z, at least in the real estate world. Gen Z is starting to graduate from college, with highly educated young professionals finding well paying jobs given a tight labor market. Some of Gen Z will skip renting altogether, opting to move right into homeownership when possible. More often, however, Gen Z will rent for the years to come. Yet unlike Boomers and Millennials who are willing to pay exorbitant prices for downtown urban living and the amenities that offers, Gen Z appears to be more price sensitive. Gen Z seems the most likely to move to outer-urban and suburban neighborhoods where they can stretch their dollars further.?

Related:?How to Manage Risk in Real Estate Investing

Real Estate Trends in 2020

In 2020, the real estate market will be influenced by Gen Z in many ways. Most notably is building design and construction. Across all product types, but especially as it pertains to?multifamily, Gen Z will be paying close attention to the sustainability of buildings. Millennials may have pushed developers to be more environmentally and ethnically conscious, but Gen Z will actually hold developers accountable and will “vote” with their feet when choosing where to live as a result.?

Moreover, as alluded to above, Gen Z seems more willing to sacrifice location for space, amenities, value, and community. This will make outer-urban and suburban multifamily properties highly attractive to the increasingly financially conservative Gen Z demographic. That said, although Gen Z is willing to move further from the urban core, they still require access to public transit. Properties located within walking distance to public transit will therefore be in high demand.?

Conclusion

It is helpful for investors to understand how each of these four demographic “buckets” is having an impact on the commercial real estate industry as a whole. That said, each of the demographic profiles featured here today encompasses a wide range of individuals. It would be a fool’s errand to make blanket statements about people who are often in the same demographic classification but who are otherwise 20 years apart in age. Each cohort has its own nuances that investors must understand.

The same is true about the demographic patterns within a specific locale. Any prospective investor will want to carefully investigate the hyper-local demographics – trends, patterns, market shifts and more – that could potentially impact the success of an investment. Those who?understand the data?behind these trends will be well positioned to identify opportunities well ahead of their peers.?

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