Retiring Baby Boomers Could Reshape Real Estate
As the heart of the baby boomer generation begins to hit retirement age, what boomers will do instead of work has the potential to transform multiple sectors of the real estate industry.
About half of all baby boomers have hit the age of 65, and while exact retirement ages will vary, their sheer numbers — 693 million boomers worldwide will hit retirement ages in the next decade — compared to generations before will be felt by industries that cater to retirees.
Travel, leisure activity and hotel properties have soared in value since 2011, when the first boomers started turning 65, according to a new Cushman & Wakefield report shared with Bisnow.
Boomers control 70% of disposable income in the U.S., according to the report, titled Demographic Shifts: The World In 2030. Though a generation that has had its entire working life span to build wealth should be expected to have the lion’s share of such income, 70% is too high a number to be merely cyclical, C&W said. Millennials have so far not been able to keep up with their parents' savings patterns due to flat wages and the explosion of student debt.
Boomers are not just likely to control an outsized portion of disposable income over the next decade; they will likely spend a larger portion of that income as well, according to the C&W report. Boomers have spent more and saved less at every point in their lives than their parents did.
“You’ve got these cashed-up baby boomers in retirement or racing towards it who are making the most of their lifestyles,” Dominic Brown, one of the report’s authors and C&W’s head of insight and analysis for Asia & the Pacific, told Bisnow.
Boomers are expected to take a larger share of overall consumer spending in the next five years, rising to 33% of aggregate spending in the U.S. by 2025, according to a report from Visa's analytics division. The same research projects the percentage of aggregate spending from all younger generations to decline.
The term “silver tsunami” has come to denote the predicted flood of healthcare usage and spending as boomers age into needing more frequent and intensive care. But for the next decade, the majority of boomers won’t yet hit the age when healthcare spending tends to spike, meaning the possible concentration of leisure and travel spending could first form a powerful wave of its own.
“The bulk of baby boomers weren’t actually born until the '50s, so they won’t even hit their early 70s, which is when you start to consume relatively more healthcare, for another 10 years,” JLL Chief Economist Ryan Severino said. “So I still think that you have another 10-20 years, even as the older segment consumes healthcare at an increasing rate.”
Brick-and-mortar retail will likely see a significant boost from retiring boomers, according to the C&W report, which cited a LoyaltyOne survey that found 84% of boomers prefer to shop in-store to online. Only 27% of respondents in the survey considered shopping to be a leisure activity.
Without a busy work schedule, they may seek to reintroduce retail spending as a leisure activity rather than one purely focused on efficiency, Severino said — although convenience is paramount for the aging population, LoyaltyOne found.
“If I was in [a landlord’s] shoes and thinking past just the next couple of years, then the way I would play it is to get a mix of tenants complementary to what those retirees might find beneficial,” Severino said. “So not just having good anchors and high-end inline shops, but decent restaurant or coffee options, and also service options like a medical use that can appeal to somebody who wants to do some one-stop shopping.”
Baby boomers are aware of how expensive healthcare will be for them, and it is being reflected in their retail spending habits. A study by FONA International found boomers are expected to spend 3.4% more on health products than their parents did, and reports that 72% of them read food labels to check if a given product is healthy.
Also crucial to boomers will be convenience of access and transportation. As more of that demographic sell their houses and become renters by choice in urban areas, they will be more likely to frequent shopping centers that cater to those styles. For example, the influx of boomers into cities is a driving force behind the growth of smaller, urban grocery stores, CBRE Chairman of Americas Research Spencer Levy said.
“An area we’ve been advising all of our retail clients to do is to have far more pickup and drop-off areas rather than parking, because boomers have discovered ride-share services as a way to get around more,” Levy said. “Transportation accessibility will be increasingly important.”
Though the boomer generation is in better financial shape on the whole than millennials, it is not a monolith of affluence. Growing wealth inequality will likely be thrown in starker relief as people transition to fixed incomes, Levy and Severino agreed.
“The one thing that I worry about a little bit is that somewhere around two-thirds to three-quarters of boomers have under-saved for retirement and are going to have no real source of income besides Social Security," Severino said. "So I worry about them being able to spend.”
The two most demographically significant groups of baby boomers then would be the smaller, wealthy cohort that will want luxury versions of whatever travel, leisure, entertainment or retail they pursue and a larger cohort that might have more time than it once did, but no added spending power, Levy said.
“It’s not just things like travel, but also spending on things like fast food [is increasing], so some categories of retail you might not intuitively expect from that generation are getting a boost,” Levy said.
As the smaller portion of the boomer generation, the wealthiest will be important to track for real estate companies looking to be a landing spot for all that spending. Where that spending will happen remains somewhat of an open question, as global urbanization could lead more retirees to remain in place rather than move from, say, New York to Florida.
“There will be different increases in different cities, because they’re on different trajectories with underlying demographics,” Brown said. “You can’t just invest your money anywhere — you have to think, ‘Where are they retiring? Where are they spending their leisure time? Is it California, Florida or overseas?’”