3 Areas Where Generation Z is Driving Change in CRE
Generation Z (Gen Z), defined by the Pew Research Center as anyone born 1997 or later, is often regarded as an extension of the Millennial cohort. However, the two generations exhibit distinct values, challenges, and behaviors and as such have unique influences on the commercial real estate industry.
According to AdWeek, Gen Z is expected to make up about 40% of all consumers by 2020. As Gen Z begins to gain purchasing power and fill the roles of tenants, employees, and users of multifamily, office, and retail spaces, CRE professionals must prepare for the impact that this shift will have on the design, location, and overall demand for commercial real estate properties.
Read ahead to learn about how this demographic segment is expected to influence different CRE asset classes.
An estimated 60% of Gen Zers, or approximately 44.4 million people, are looking to rent instead of buy. Gen Z renters are focused on technology, flexibility, convenience, and customization, meaning that they are highly deliberate and educated when deciding on their living spaces. Generation Z has a strong desire for buildings that offer a sense of community and that are created from eco-friendly building materials. The belief that they are responsible for correcting the shortcomings of previous generations has driven Gen Z’s demand for creating small carbon footprints. It is their expectation that companies will exercise sustainability practices, too. Gen Z Insights reports that almost 1/3 of Gen Zers admit to boycotting companies perceived as following unsustainable practices. Investing in green materials may mean more upfront costs but will yield profitable returns when able to attract the Gen Z market. Publicizing sustainability efforts is also helpful in attracting Gen Zers as 88% of them seek companies that share their values.
In addition to their concern for using environmentally friendly materials, Gen Zers are heavily concerned with the reasonable pricing of housing. Gen Z’s frugal mentality and innate researching skills combined with a strong technological background has enabled them to develop a firm understanding of the market. Overpriced, luxury units are less attractive to the Gen Z cohort than units priced at market value with energy-efficient amenities or community-based features. Because of their need for instant communication, Gen Z tenants are attracted to multifamily properties equipped with in-unit access to services such as Amazon’s Alexa device.
Generation Z is entering the workplace with no knowledge of a time when technology and smartphones did not exist, a fact that heavily influences their view of the ideal work space. Similar to their Millennial counterparts, 74% of Gen Zers prefer coworking spaces that allow them to communicate face-to-face and have flexibility with regards to where and how they work. On the other hand, 69% of Gen Zers also desire their own workspace with quiet areas, meditation rooms, and other spaces that allow them to have more individual, quiet time to work as well. CRE professionals should consider a combination of designs that encourage Gen Z’s needs for a collaborative yet quiet atmosphere.
Gen Zers also seek functional, sustainable, and aesthetically pleasing features in the office. A work environment that is equipped with current and future technological tools is a sure way to attract this group of native technology users. Electric car charging points in the parking lot, augmented cellular and WIFI reception, and energy performance and occupancy data are all examples of ways to incorporate functionality into the office. And wellness initiatives, solar panels, and responsible water policies are effective ways to create Gen Z-approved sustainability practices at work. It is also important that on-site amenities align with the aesthetics of places outside of the office. For example, hangout areas that resemble stylish cafes, business lounge areas, or exclusive on-site gyms are becoming increasingly popular amongst Gen Zers because they provide additional opportunities for developing a sense of community.
As retail moves towards a heavier online presence, retailers are working to attract younger audiences, such as Generation Z. In contrast to the recent decline in brick and mortar stores, a study by the IBM Institute for Business Value and National Retail Federation found that 98% of Gen Zers prefer to visit a physical location- this generation enjoys the experience that in-store visits offer and welcome high-tech features that enhance their shopping experience.
In addition to experience, location and design are important to Generation Zers. Forty-eight percent of Gen Zers say they select which stores they visit based on location and convenience. Growing up with Instagram has placed design and visuals on a pedestal for Generation Z, and these same priorities apply to exterior and interior design for retail.
As Generation Z enters the commercial real estate industry, their influence on the market will continue to grow. To learn more about how specific generational cohorts are driving trends in commercial real estate, check out Multifamily for Millennials: Top Trends in Amenities & Services.