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4 Ways Millennials Are Changing The Net Lease Industry

millennials are changing the net lease industry

Right now Millennials are the largest generation, surpassing even Baby Boomers.

Their sheer numbers have already begun affecting numerous industries, and experts and professionals in all areas have spent considerable time and money exploring how their preferences and behaviors will affect the economy.

The field of commercial real estate is no different.

It’s clear that understanding Millennials is essential when anticipating future demand, but in order to effectively predict how this demographic will affect commercial real estate, it’s essential investors acknowledge the diversity of this age group.

In fact, once you examine the data carefully, it becomes clear that distinctly different opportunities arise which differ depending on trends amongst each group.

Urbanism vs. Suburbanism

Millennials have begun migrating to the suburbs

While some experts predicted Millennials would remain in urban areas, research shows older Millennials have begun migrating to the suburbs. This demographic, which has begun to marry and have children, have started looking to the suburbs for better schools and lower housing costs.

As a result, while urban areas will continue to grow and creative office space will continue to be in demand, suburban areas will also start to see demand for office space. Some of the largest companies, such as Qantas and AMZ have already recognized this trend, and have already begun building large suburban campuses for their employees.

Employers anxious to please this age group looks for locations with good schools, good public transportation, and premium live/work amenities. They hope to provide a “city-like” atmosphere in the suburbs.

On the other hand, younger Millennials continue to flock to urban areas.

Crime is down in many cities, while restaurants, nightlife, and a more racially diverse population are some of the factors that appeal to this slice of the Millennial pie. In short, the desire for a “live-work-play” lifestyle has caused many companies – anxious to attract and keep Millennial talent – to relocate closer to large cities.

In addition to office spaces, this trend has also played a role in the rise of mixed-use developments. Investors have begun repurposing outdated industrial and retail properties, or building new properties, in order to accommodate this migration.

Micro-units have also become more popular. The high cost of living in the city, combined with the struggle to pay student loans has left many with no choice but to take in roommates or share bedrooms in order to afford an apartment in the city.

Enter the micro-unit.

With an average size of 240-400 square feet, these startlingly small spaces are often so compact that many barely contain a kitchen. Instead, there is just enough space for a sink, refrigerator, and a double cabinet – no oven included.

To make up for the small size, investors are instead offering premium amenities. Features such as common kitchens and living rooms, co-working spaces, full gyms complete with trained staff, and rooftop green areas are just some of the amenities offered.

Experience-Based Retail Centers

With mixed-use development common in many urban areas, many investors have begun carrying over the same principle to retail properties.

Millennials are eminently comfortable ordering online, and with Amazon and other online giants continuing to expand both offline and online services, the trend of ordering everything from toilet paper to a date online will definitely continue.

In addition, consumption for consumption sake isn’t resonating with Millennials. Not only are they more conscious of environmental sustainability and mindful living, they are increasingly being squeezed into smaller living spaces with less space to store their belongings.

Longer work hours and less disposable income mean when they do get off, they’d rather do something that makes them feel good, rather than buy another item to take up space in their tiny apartments.

In an effort to revive off-market retail, owner-developers have begun turning retail outlets and shopping centers into experience-oriented destinations.

experience-based retail centers Macy's

As a result, retail owners are focusing on ways to create compelling experiences for shoppers. Macy’s, for example, added products like 3-D printers and Fitbit health monitors to its Herald Square flagship store in Manhattan. These large retailers realize that Millennials aren’t interested in more “stuff;” instead, they prefer to pamper themselves or do something that makes them feel good.

Some types of retail stores are naturally experiential, such as nail and hair salons, restaurants, health and fitness centers, and art galleries. Others can become more experiential by searching for hands-on activities, personalized rewards and in-store experiences that help draw in customers.

Some examples include:

  • Big Box Home Stores offering DIY classes for free or low-cost
  • Grocery stores that offer a wine or food bar
  • Sporting goods stores that incorporate climbing walls, mini-golf courses, and other features that allow consumers to “try out” equipment before they buy it
  • Clothing stores with high-tech fitting rooms that allow consumers to try out different looks

Other retailers are decreasing the amount of store space – thereby reducing expenses – by allowing consumers to purchase products online and pick them up in the store later.

Some retailers have found success by partnering with the local community.

Locally sourced, organic fruits and vegetables at a restaurant, for example, or small-batch coffees created from customers’ wish lists, are some ways of creating meaningful experiences that are intimately connected to the store and its mission.

For property owners, this shift has created unique challenges. Deciding on the right size space for various types of properties is harder; the old measurements no longer apply. And determining the right mix of stores is equally difficult, especially when the stores themselves are experimenting with layout and the services they offer.

Millennials have grown up with different technology, and a different set of expectations in terms of convenience. Smart investors would do well to innovate to meet their needs in order to capitalize on the 75 million Millennials dominating the marketplace.

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Tags: Amazon, Baby Boomers, Commercial office space, commercial real estate, commercial real estate investing, CRE investors, Micro-units, Millennials, restaurants, retail, suburban areas, Urbanization