Change Is A Constant
If there’s one thing I’ve learned in my time with real estate it’s that the landscape is always changing. While I may not be the most seasoned veteran of the real estate game (enter post about Gen-Y), I have already witnessed some very high highs and very low lows and will almost certainly witness them again in the future. The great thing about the game though is that it always has to be played. Buildings become obsolete, neighborhoods turn hot/cold over time, and populations shift their interests and focus…which ultimately affects the value and opportunities one can capture from those changes.
My generation, with a size that rivals our parents/baby boomers, will be the drivers of profound change on the real estate industry over the next few decades due to the sheer magnitude of our purchasing power and influence on the economy. Here are three things myself and my generation are thinking about right now, both in the near and long term future, that you may be able to capitalize on in your real estate business—be it brokerage, developing, lending, design, marketing, etc.
1) We want our own place…eventually
Multifamily development is white hot right now in just about every market. And there are plenty of reasons for this—pent up demand, stalled supply, shifting renter behavior, changing demographics, etc. With many markets pushing rent rates up and occupancy reaching saturation levels, it’s no question this sector is ripe in opportunity. A possible shift in focus, however, is the notion that this attention on apartments may not be as pure of an answer for my generation in the future as what current expectations and projections suggest.
Here’s the early trend: What we are thinking about (or will start to very soon) is that, while apartments offer terrific flexibility as a young professional, our focus will shift towards housing that’s more rooted and secure because our priorities will ultimately change (i.e.: starting a family). This is opposite of what current trends are suggesting about Gen-y. We (most of us) won’t have the desire to stay in apartments forever, but still may hold on to the thought that locking into homeownership isn’t worth the hassle.
I made this the first point in this post because of a market driven trend taking place—one of single-family home rentals becoming more common and gaining acceptance amongst both investors and my generation. This solves the forthcoming issues of ‘settling down’ and increased security for my generation while also providing the flexibility that originally drove us to apartments.
This trend is beginning to gain more mainstream attention, as the WSJ recently published an article on private equity giant KKR and homebuilder Beazer Homes USA Inc. forming a single-family home rental REIT.
Joe Stampone, creator of astudentoftherealestategame.com, also commented about this topic recently. His points about renting are exactly what’s on trend with how a large population of Gen-y’ers are thinking towards homeownership. http://www.astudentoftherealestategame.com/2012/05/07/why-im-a-renter/
As more and more Gen-y’ers throw baby photos up on Facebook (you know who you are), the need for residential stability (or the appearance of stability—through single-family housing) will likely become a more enticing option. Yet renting is still engrained in the minds of many Gen-y’ers now and probably over the next few years. In turn, the opportunity for investors and developers may not come from focusing purely on apartments or homeownership, but from the value that homeownership and flexibility bring to young and transitioning people my age.
2) Office Culture Shift
One of the things I’ve read and heard many many times over, that I don’t think entirely has an effect on the market yet, is that Gen-y is a very entitlement-driven generation. While this is a sweeping over-generalization, it could be something you can use to capture value as my generation starts to enter and move up in the workplace.
I recently read an article discussing car design trends for Gen-y and millennials and how my generation is shaping these decisions. The take-away I got from the article is that 16-30 year olds are much less interested in rebellious designs and more concerned about appearing older and being more mature/serious in the eyes of older generations. This trend likely has impact on more than just car design.
Here’s the early trend: As my generation becomes more influential in choosing office space for companies, starting up companies, and ultimately creating the demand for the future office market, the appeal of an “established and mature” office may be a trend that transfers over into this sector of the industry. The connection I have with the “entitled generation” and the car design article is that Gen-y’ers, who will be creating demand for office space in the future, may feel entitled to higher standards of office space and will also be motivated by the imagery and connotation that comes with better options—yet with the same budgets and realities businesses have today. The value to a developer or investor may come in bridging the gap in this part of the market. Office space may become more important and engrained in the images/brands that companies wish to project. Companies, wishing to or feeling entitled to better office space, may be moved to pony up more rent per square foot for the right space.
For example, take a look at the amenities and features offered in the offices of Facebook and Google. These’s two tech giants don’t represent the average office tenant, but they give us a glimpse of what it takes to attract high quality Gen-y workers (who likely have a choice of companies to work for). The office environments in these companies, with services and amenities that create mini campus environments (food/catering, dry cleaning, daycare, etc), demonstrate that many other office environments might have to start catering to this model in order to compete—one with higher standards for tenants. Tenants, eventually being represented by Gen-y’ers, may feel “entitled” to these types of spaces and will be attracted to them.
3) Secondary Market Emergence
When I was graduating from undergrad, and before deciding to pursue graduate education, I had my heart set on three cities…New York, Chicago, or San Francisco. After that it was Austin, Portland, or San Diego.
A crazy notion…back then I had actually only been to two of these cities. And a sense I got at the time was that many more people my age governed their decisions in the same fashion.
My generation is drawn to these markets b/c that’s where our friends are. That’s where we believe the vibrancy is. And that’s where we feel we’ll get the most “life” value (despite paying a premium for it). Using San Francisco or NYC as an example, we won’t be able to devote 70 percent of our income to rent and living expenses forever. Bigger commitments will manifest that will force us into markets and neighborhoods that we wouldn’t previously consider. On trend with point 1.
This quick Forbes article speaks to the notion that disposable income is increasingly important to the happiness of Gen-y’ers:
Here’s the early trend: As my generation starts to have more obligations and serious commitments, it’s inevitable that we will scrutinize more over our disposable income…yet will likely still desire some semblance of “vibrancy” that these primary markets offer. The real estate opportunities from this trend could arise out of finding the right balance between “vibrancy” and cost of living value in our secondary markets and neighborhoods.
In a cheesy analogy sense, my generation will focus its attention on finding the Nissan GT-Rs of the real estate world (amazing value and performance for the money).
or the Ariel Atom (0 to 60 in 2.9 seconds…at $25,000)
As primary markets price out a population that is shifting its priorities, greater demand could come from markets and neighborhoods that have that “something” while still offering qualities of life that support increasing commitments.
So there you have it. These are three things on my mind right now that I think could provide opportunities in the real estate industry as my generation gets older and becomes more influential. I’d love to hear your thoughts and what trends you are noticing.