Research

Next generation: Lifestyle, work style and real estate

The so-called millennials, like the baby boomers before them, are causing major shifts as they move through life’s stages. And while boomer retirement is impacting the economy, the millennials are poised to drive even more change. These trends were the topic at a panel discussion presented by the W. P. Carey School of Business and the ASU Real Estate Council.

2014-03-24

Your 20-something child, your tech-savvy kid brother and your innovative young boss are all part of a group that is profoundly influencing real estate markets. The so-called millennials, like the baby boomers before them, are causing major shifts. And even though boomer retirement is rippling through the economy, the millennials are poised to drive even more change.

“We have only a surficial understanding about what’s happening with population change or its ultimate impact on real estate, but there is a big shift occurring and that shift is going to continue to change this business,” said Mark Stapp, director of the W. P. Carey Master of Real Estate Development program.

Stapp was moderator of a March 20, 2014 discussion titled “Evolution of the Real Estate Industry.” The discussion is part of a monthly series presented by the W. P. Carey School of Business and the ASU Real Estate Council.

The boom and the echo

A baby boomer is a person born between 1946 and 1964 — age 50 through 68 today. The group was so named because of the significant increase in the number of babies born after the Second World War. There are about 75 million baby boomers in the United States.

According to Tom Rex, associate director of the Center for Competitiveness and Prosperity Research at the W. P. Carey School’s L. William Seidman Research Institute, a millennial is a person born between the early 1980s through the early 2000s. Today the group includes 87 million teenagers and 20-somethings. “They’re sometimes called the baby boom echo,” he said.

One of the biggest differences between baby boomers and millennials is their use of technology. “This is the first generation that truly grew up using smart phones, iPads — devices like that,” Rex said of millennials. “It’s very natural to them.”

Michelle Mace, president of M3B Inc., a strategic marketing consultancy, agreed, saying baby boomers enjoy possessing and using the latest technology, but millennials must have it. She refers to the millennial generation as the ‘I generation,’ as in iPhone, iPad, iTouch technology.

“Technology created and identifies this group,” she said. “They’re techno babies.”

Millennials grew up in a world where anything is accessible and information is at their fingertips, Mace said. They want to know if 'there’s an app for that,’ she said.

Another characteristic of millennials is that they reached adulthood during the Great Recession of 2008–2010 — “the worst recession since the 1930s,” Rex said. Many millennials saw their parents struggle with a mortgage or even lose their home, leaving some disenchanted with home ownership, he added.

“A lot of them aren’t really ready to become first time home buyers — at least not like their predecessors.” Rex said.

Many millennials are also graduating from college with significant student loan debt, he said.

Michael Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business, said the current student loan delinquency rate in Arizona is about 12 percent. For mortgage loans, the rate is about 5 percent, he said.

“This is going to weigh really heavy on this population,” Stapp said. “They are coming into adulthood and the consumer segment of their lives with a heavier burden of debt than any other generation prior to them.”

This debt, coupled with the memory of a poor economy during their childhoods, will change buying habits, Stapp said. “They value their freedom and their flexibility more than they value owning a home.”

Urban-minded

The real estate industry needs to start thinking differently, Mace said, to accommodate the wants of this significant group.

“How would you design a house or how would you market a place to somebody who understands the world 140 characters at a time?” she said.

Mace said keeping the values of millennials in mind should change the way planners design a city, a community or a business. Urban-minded, millennials like the live/work model. They don’t distinguish the boundaries between home and office like previous generations, she said. They also want their homes to do more. Smart devices like programmable thermostats are just the beginning.

“One of the most important words to a millennial is access,” Mace said. “The boomers wanted to own it. The millennials want access to it; they’re happy with access.”

Many offices have already adopted the millennials’ collaborative style, getting rid of individual offices and cubicles and creating open areas for people to get together and share ideas, much like a kitchen or living room, Mace said.

“Office looks like home and home looks like office,” she said.

Locking a millennial into a private office and telling him to be creative isn’t going to work, Mace said. They’re used to multi-tasking and lots of stimuli. She said people don’t decorate an office or cube anymore; they carry their things with them and they move around.

Economic implications

Catering to this momentous group may prove to be crucial to the success of the state.

Arizona’s millennials are a diverse group, Rex said, more diverse than the country. And, the millennials in Arizona are not as well educated as their contemporaries in the rest of the nation, he said. “There are some concerns that Phoenix isn’t quite keeping up with the new generation,” Rex said.

To grow the state, Rex advised finding ways to keep millennials here like bringing quality employers to Arizona.

Mace echoed that idea. Arizona’s workforce is young, but will need training to attract those quality employers.

As the millennials age, baby boomers retire and the economy changes, the values and desires of the millennial generation could change, Mace said. “We need to give them time to mature,” she said.

Markets Real Estate