Young Talent Driving CRE Trends


Brent Carroll

The commercial real estate industry has seen many different trends—trading in big box stores for savvy boutiques; shutting the doors of brick-and-mortars and plunging into the e-commerce world; and not to mention, the explosion of 24/7 micro markets popping up across the country. These trends are driven primarily by demographic behavior. And in the current real estate cycle, the Millennials are in the driver’s seat.

There has been a lot chatter about the Millennial generation—their tendencies, attitudes and beliefs—and most importantly, their potential impact on the economy. Touted as the largest generation to come of age and representing more than 50 million of the current workforce, this cohort is characterized as so-called late bloomers, reaching adulthood milestones much later than their predecessors. Think marriage, children and homeownership.

What this means for real estate is wherever the Millennials are going, demand for space will follow—and with such a large demographic group, this trend will be long-lasting. At the beginning of the current real estate cycle, we saw Millennials move to urban areas, trading in the American dream—white picket fence and all—for flexible rental options, highly connected transportation systems and access to diverse amenities. Cities like New York, San Francisco, Boston, Seattle and Chicago were first in pecking order and offered the ultimate live-work-play environment. More recently, however, the increased residential demand and skyrocketing rents have started to outprice many young professionals from these urban cores, forcing them to set sights on new secondary market locales where housing is more reasonable, yet the accessibility to the downtown live-work-play lifestyle is still there. Additionally, the oldest Millennials are now in their mid-30s and are finally starting to think about marriage and starting a family in a single-family home. This trend shift comes to the delight of many employers who have also made the move to secondary markets and have been able to take advantage of not only a talented workforce, but cost-saving economic conditions such as lower salaries and generally lower cost of living.

According to Jones Lang LaSalle, Oakland-Eastbay, Atlanta, Minneapolis, Dallas-Fort Worth, Miami, parts of New Jersey, San Diego and Philadelphia are leading the second-tier rush. These cities were slower to recover post-the financial crisis and have a lot more room to grow in terms of rental rates and occupancy. This should keep demand healthy for the foreseeable future, prompting companies and builders to adapt accordingly and create mini-downtowns that capitalize on the live-work-play lifestyles. Rehabilitation of dated buildings is especially hot in these metros.

KBS’ Towers at Emeryville is an excellent example of prime office within proximity of a bustling urban epicenter. Located across the bay from downtown San Francisco in Emeryville, CA, the office park enjoys spectacular views of the San Francisco skyline and the Golden Gate Bridge as well as downtown Oakland from virtually every floor—a unique trait within the market and a tremendous selling point for local employers. Visible to the commuters that traverse Interstates 80, 580 and 880 every day, Towers at Emeryville sits on one of the most high-profile sites in the Bay Area and benefits from an educated talent pool residing the greater San Francisco area.

All eyes continue to be on Millennials as their impact on the economy is exponential. The oldest Millennials are entering their family planning years, while the youngest are just about to embark on college. That 15-year-or-so difference will keep demand for prime real estate at its peak. While secondary markets are gaining popularity, appetite for gateway cities and downtowns will always be strong among the younger Millennials, until they reach their mid-30s.

 

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Brent Carroll is senior vice president for KBS Realty Advisors and its affiliate KBS Capital Advisors. He is responsible for the performance and acquisitions of KBS assets.