Millennials Are So Last Year: Commercial Real Estate Developers Build With Gen Z In Mind
Apartment rental ad of the future: one-bedroom, one-bath available. Materials sustainably sourced and eco-friendly. Construction workers were treated humanely while on job site.
Welcome to Generation Z’s influence on commercial real estate.
Multifamily and coworking locations will be earth-friendly. Increased food delivery demands will require larger commercial kitchens. Retail spots will become a place to do something rather than buy something.
The next generation of consumers is already influencing the next phase of real estate. Generation Z has been defined as anyone who is born after 1996. The eldest Gen Zers are now 22, coming into adulthood and beginning to have purchasing power.
Today’s youth will be the drivers of change, and other generations will eventually catch on, Ernst & Young Executive Director Marcie Merriman said. Merriman is an expert on cultural anthropology and brand strategy. She helps prepare C-suite executives for what future consumers will expect.
“The real focus should be in how we understand youth culture,” she said.
Take a look at how the core five commercial real estate sectors are already incorporating the demands of Generation Z:
Apartment living will evolve, from how people select their flats to who they choose to live with. Access to technology has encouraged Generation Z to keep childhood friends for life. Merriman said her 15-year-old daughter still keeps in touch with people she met at camp seven years ago.
“Even with millennials, with friends you met at camp, you’re best friends for the summer, then you go your separate ways,” she said, adding that these lifelong Gen Z connections will influence the sharing of living space. “What constitutes family will be very different,” Merriman said.
Environmental considerations will also be hugely important to Generation Z. Before, someone might have simply been looking for a three-bedroom place with two bathrooms, but Gen Z renters will take interest in granular details like the types of building materials used to develop complexes and how kindly workers on the projects were treated, Merriman said.
Locations will be largely chosen based on environmental factors and a desire for a sense of community, she said. No longer will it be acceptable to pollute the air with too much driving, and suburbs will continue to morph into true cities-within-cities.
Technology will continue to play a big role in the continued desire to live seamlessly, including hands-free technology to handle basic tasks, including turning off the lights, changing temperatures and entering the apartment.
Restaurants will evolve in one of two ways, Merriman said.
Food delivery will become increasingly more popular, and not just traditional cuisine like pizza and Chinese food. The rise of restaurants adding delivery components to their brands may lead restaurateurs to expand their kitchens, reducing dining room footprints.
“I live in Columbus, Ohio, which is a test market for everything,” Merriman said. “We have 15 food service deliveries here. I travel for work and I’m surprised when I can’t get these things.”
When this younger generation does go out, it will be to commune with family and friends. Restaurateurs could end up building larger, community-focused dining rooms as a result, Merriman said.
Generation Z has only known a world in which anything can be delivered at their front door.
“They grew up with that natural expectation,” Merriman said. The gap will continue to widen between those filling food delivery needs and those filling community needs.
With Gen Z’s future retail purchasing power, the in-store environment will come to serve a different purpose, Merriman said.
Retailers who have entered the scene since the rise of omnichannel will have an advantage. They won’t be held to the same quotas as ones who focus only on direct sales to consumers. Success will begin to be defined in other ways, Merriman said.
Before, in-store events were a traffic driver. Next, they will be a brand driver. When wine tastings or classes first became popular, it was with the intent of increasing foot traffic, leading to more sales that evening. Future successes won’t be weighed on how many immediate sales were made, but on building relationships. Trends will focus more on brand engagement and the idea of selling consumers something later, perhaps even online.
“They won’t think of brick-and-mortar as a place to buy stuff, but a place to do stuff,” Merriman said.
Gen Z will also usher in a demand for transparency in materials, Merriman said. This will be different from Generation X, which prided itself on catch phrases such as “Shop till you drop” and “He who dies with the most toys wins.” Millennials introduced the concept of minimalism, but Generation Z will drive that simplistic notion home even further with ethical demands.
“There will be a guilt aspect associated with having things,” Merriman said.
Distribution spaces will be created closer and closer to consumers, Merriman said. The addition of 3D printing will potentially bring change to distribution markets based on how fast and chic it turns out to be.
“If I can print it, that might change how I can have things distributed,” Merriman said. “The supply chain really is at the heart of all of it.”
Improved 3D shopping experiences, better photos and faster delivery will help drive internet commerce, The Seyon Group Managing Partner Andrew Iglowski said.
As an investor in industrial properties, Iglowski said Seyon chooses assets specifically located near consumer pools. He said this better positions the company as a long-term partner with e-commerce retailers.
“With a Generation Z factor as one of a few drivers, we expect surging levels of internet commerce as a percent of all retail activity in coming years,” he said, adding that many may be surprised to know how little retail purchasing is currently done online.
E-commerce retail sales reached $453.5B in 2017, according to the U.S. Census Bureau. This accounts for about 9% of total retail spending.
In these early stages of internet commerce, Iglowski said priorities have focused on guaranteed availability and short delivery times to compete with brick-and-mortar. The result has been higher logistics costs, warehousing in particular.
“We expect logistics practices to be continually fine-tuned for efficiency,” he said. “We expect that, with essentially no inhibitions to online commerce, Z'ers will feel comfortable acquiring effectively any purchasable good online."
Financial means within different life stages will dominate the next generation’s spending as with any other’s, Merriman said. Since the oldest members of Gen Z are in their early 20s, this means low-cost hotels will be a priority for some time.
The difference between millennials and Gen Z will lie in their expectations, Merriman said.
“Gen Z won’t necessarily prioritize hotels that provide special 'experiences' as they have always had the technology in their hands to find their own," she said.
Instead, she said they will seek hassle-free check-ins and abilities to customize and personalize their room selections — without having to interact with another human.
“Room service will be irrelevant as this is the Uber Eats, Grubhub, DoorDash generation. These companies know them and their dietary desires,” Merriman said.
As with other sectors, Gen Z will place a higher priority on the company’s treatment and compensation of its employees.
“Transparency will become the expectation and internal business practices will become an important part of the brand identity," she said.
A hotel’s design will be equally as important as its location, millennial and Generation Z Engagement Expert Ashira Prossack said. Prossack works with clients in business, retail and hospitality to help them better understand and engage today's youth.
Currently, members of Gen Z are mostly still traveling with their families and aren’t yet the decision-makers, but Prossack said it is important to cater to them now so they will return to those hotel brands they liked when they are in charge of trip planning.
Power and USB outlets need to be available not only in the rooms, but in common areas as well, she said. Rooms will need to be designed with modular features, keeping options for modification in mind.
Expected features include Smart TVs with the ability for them to log into their own Netflix accounts.
“Gen Z expects a far greater level of personalization than millennials,” Prossack said. “This is largely due to the fact that they’ve grown up in a world where they’re getting personalized advertising based on their browsing habits, and this is what they’re familiar with.”
Services that allow for personalization will be a huge selling point for Gen Z, including giving them choices of pillows, throw blankets and premium bath products.
Millennials introduced us to open office and the shared-office experience, Merriman said. Generation Z, by contrast, will feel that work can be done wherever they want, whenever they want. All they will need is a laptop or, in some cases, a phone.
Environmental concerns will play into how Gen Z chooses to work.
“Driving half an hour to work — is that really necessary? Not just convenience, but how much pollution am I introducing into the environment?" she said.
Gen Z’s desire for community will keep coworking spaces in high demand. Companies will need to get creative to fill the desire for coworking but also keep emissions low. Turning suburbs into true cities-within-cities is one way to satisfy both needs, Merriman said. Another is to be located in walkable or transit-oriented areas.
WorkPlace at HOK director Kay Sargent said Generation Z’s ability to be constantly connected takes an emotional toll as well. The anxiety and emotional detachment many will face will need to be counteracted with workplace design that promotes positive mental and emotional health. Quiet areas, technology-free zones and meditation rooms will be on the rise, as well as offices with a neighborhood concept and unassigned seating to allow for flexibility and placemaking.
“We need to design spaces that minimize visual clutter, provide ease of navigation and support health and well-being,” Sargent said. “In workplaces that lack these attributes, engagement and productivity will suffer.”
The Time To Prepare Is Now
As some hold their breaths waiting for the Generation Z shift to commence, Merriman said it is time to stop waiting: It is already here.
In the U.S., more than 25% of the population is Gen Z, and they will account for 40% of all consumers by 2020, according to an Order Dynamics white paper.
A key difference between millennials and Generation Z is that today’s youth have always expected a digital component to any experience.
“Where most millennials can at least somewhat remember a time when the Internet wasn’t all-consuming, Generation Z more or less grew up with smartphones in their hands, the world at the tips of their thumbs,” MRI Software industry principal Brian Zrimsek said.
As with all other industries, commercial real estate has already found itself adapting its methods and tools designed to reach this group of future spenders.
“If those serving Gen Z resist adopting a digital approach, they’ll find themselves left behind, trying to reach the new generation on the one smartphone app they hate to use: the phone,” Zrimsek said.