How Millennials are Driving the Transformation of the Real Estate Investment Market
What are the most important Millennial trends for investors and lenders? What should you look for in properties to address the Millennials’ wants and needs? Those were some of the key issues in a panel session at the University of Miami’s fifth annual Real Estate Impact Conference, hosted by the School of School of Business Administration and the School of Architecture in February 2016.
Manny de Zarraga, executive managing director at HFF, moderated the “How Millennials are Driving the Transformation of the Real Estate Investment Market” panel, which featured Garrick Brown, vice president of Retail Research of the Americas at Cushman and Wakefield, Katy Gnapp, head of commercial real estate banking at Bank of America Merrill Lynch, and Alfonso Munk, chief investment officer for the Americas at Prudential Real Estate Investors.
“Retail is deeply in love with Millennials. The problem is, it’s unrequited love because they don’t spend any money,” said Brown. “Millennials are the biggest consumer block now 87 million everyone is chasing them. It’s causing changes in the commercial real estate landscape.”
Those changes include e-commerce-driven right sizing in the retail industry, even though Brown’s research shows consumer’s still make 75 percent of all purchases in brick-and-mortar retail stores. Meanwhile, on the multifamily front, research shows that Millennials want smaller spaces—but Brown is betting those preferences will change over time as this generation settles down and starts families.
“We’ve been financing quite a bit of multifamily projects in urban markets and they are smaller units,” Gnapp said. “There are extra costs, like adding technology to the building and dealing with packages. Millennials buy so much online that some of our clients set up lockers so UPS can deliver packages to relieve management of taking on the expense.”
Munk sees the conundrum of the present reality of Millennials versus the future needs of the multifamily market. His firm has been financing new urban multifamily construction, experimenting with what industry watchers think Millennials want, and finding out what this demographic truly wants.
“Millennials look at how much they want to pay,” Munk says. “We’ve been including amenities to attract tenants—such as golf simulators and bowling alleys—but we are having a tough time bringing people in. You have to get your amenities and unit mixes right but also work on the surrounding areas. We have to invest in bringing retail and services in for the tenants. That’s impacting how we invest.”
Moving from rooftops back to retail, Gnapp is convinced the mall sector will see “haves” and “have nots.” Because it’s difficult to keep a tenant base in a small market to support the mall, she expects to see brick-and-mortar stores consolidate for efficiency by managing inventory and delivery systems. Still, she says, Millennials like to be able to make returns at a traditional storefront.
“Trophy malls are doing better than ever but the story of dead and dying malls is absolutely true. Neighborhood centers anchored by drugstores and grocery stores are a whole different world,” Brown said. “They took it hard in the downturn because a lot of the tenants are mom and pops but they are rebounding nicely. Primark is going to shake things up.”
Primark is an Irish clothing retailer that offers deep discounts. The company offers everything from baby clothes, to homeware, to beauty products to candy. The Economist has billed Primark as having “trendy clothes at astonishingly low prices.” Because prices are so low, Primark is sparking a fast fashion trend that encourages consumers to buy lots of clothes frequently.
“Primark is huge discounter that completely avoids e-commerce but their pricing makes Marshall’s and Ross look like Bergdorf Goodman,” Brown said. “Seven dollar jeans and three dollar T-shirts are the norm. They have opened three stores in the United States and they are going to keep coming. Primark is setting a low bar for the discount sector.”
In a brief look at the office market, Brown pointed to the war for talent—including Millennial talent. Office prices have skyrocketed and it’s become such a huge issue that some companies are moving to the suburbs. “Many companies want to appeal to Millennial tech workers,” he said. “You can appeal to them with a cool city.”