Everyone is talking about millennials today. Economists, pundits, politicians and businesspeople have all weighed in, as their generation became the largest proportion of the overall workforce in 2015.
What effect, if any, is this having on the commercial real estate market?
“Millennials, more so than other generations, tend to place higher value on the benefits and amenities associated with a job opportunity, rather than just the monetary compensation the position offers,” said Elliot Calhoun, broker at NAI Avant. “By creating office space that is more open, inviting, and encouraging of collaboration, we as commercial real estate professionals can help landlords garner higher rent rates by attracting the companies that demand this type of space.”
In the Charleston Metropolitan Statistical Area, the evolving desires of the workforce is influencing developers to invest larger amounts into building/re-purposing properties, requiring higher rental rates. Because millennials are now the majority of the working class, the emerging modern work spaces in the area are in high demand, enabling landlords to justify the development price and tenants to justify the increasing rent.
“Additionally, millennials and thereby the companies they work for, practice sustainability and embrace cutting edge technologies,” said Calhoun. “Knowing this, if landlords mirror these concerns, they give themselves a distinct advantage when competing for high-caliber tenants.”
Companies including Questis, People-Matter, Benefitfocus, Greystar and Boomtown are ahead of the curve, boasting contemporary office spaces that offer collaborative environments with open floor plans, amenities, entertainment/lounge areas, kitchens/food courts, creative installations and large windows. Other developers and business owners are quickly following suit, which can be reflected in the new Blackbaud campus, 22 WestEdge, Daniel Island Square and Courier Square, all underway.
Many of the most significant effects are driven by this generation’s dramatically different habits of work, play and travel. From alternative commutes to remote work, any business that employs millennials needs to address these factors and structure their organizations and real estate accordingly.
The rise of telecommuting
Simply put, millennials love telecommuting and working from home. Deloitte’s 2016 Millennial Survey confirmed a few key insights about them:
43% of millennials currently have the ability to work from home.
75% would like to and think it would positively impact their productivity.
88% want the opportunity to work with flexible hours, starting and stopping on their own schedule.
The practical effect of this is a reduced need for office space on any given day. In some cases, employees will share desks or rotate freely through dynamic, open-plan offices. Senior millennials in executive positions are equally enthusiastic about this dynamic — according to Deloitte, 56% of those in this category enjoy the ability to work remotely and on a flexible schedule.
Moving forward, scaling up an enterprise and hiring new staff won’t necessarily obligate a business to acquire the same square footage they might have needed before. With the ability to work flexibly, the need for a traditional office space is lessening, which is why many companies are incentivizing millennials to be in an office all day using amenities and creative space. An alternative to this, however, can be seen in companies utilizing co-working spaces, rather than inhabiting an individual office and paying a full rent. The trend is steadily catching on in Charleston, with co-working spaces including Launch Pad, Local Works and Holy City Collective operating in the area.
New priorities for location and lifestyle
Just because millennials don’t prioritize office space the same way, however, doesn’t mean that CRE professionals can’t market to them effectively. One of the biggest differences between them and previous generations is their decreased willingness to endure long commutes.
Millennials just aren’t as car-centric as their parents in general — in fact, a study from the University of Michigan showed that only 60% of 18-year-olds now hold a driver’s license, down from 80% in the 1980s. An analysis of millennials’ driving habits versus those of Gen X and Gen Y by a professor at the University of North Carolina found that the reasons for this were varied, but a changing — and largely negative — view of cars was responsible for as much as half of the decrease in total driving miles.
As a result, many young people must be willing to compromise in other areas, including the neighborhoods they live in and the size of their houses and apartments. A business that seeks to hire a significant number of millennial employees should take these factors into account.
In addition, increasing use of mass transit changes the favored location for an office significantly. Spaces near major commuting and transport hubs may continue to rise in value, while those located farther afield in places where commuting by car is the best option may see demand drop.
How to tackle these changes
It’s time to break with some of the conventional wisdom of how to manage partnerships seeking office space and commercial real estate. Increasingly, these businesses will be staffed, managed or even owned by millennial entrepreneurs.
It’s critical to understand your local geography and get a grip on how people are commuting, where they prefer to work and how far they’re willing to go.
The market may be changing in several key areas, but that doesn’t mean opportunities are going away — you just need to know where to look.
Alysha Duff is a marketing specialist for NAI Avant in Charleston. Contact her at firstname.lastname@example.org.