Maslow’s Hierarchy for Commercial Real Estate
Originally published in the 1940s, Maslow’s Hierarchy is a theory of human motivation, which provides order to the chaos of human behavior. Since its conception, it has been repeatedly discussed, applauded, and criticized. Despite occasional unpopularity, Maslow’s Hierarchy continues to have a strong relevance in today’s society and is often applied to various social and cultural aspects of the world in which we live.
What is Maslow’s Hierarchy?
Maslow’s Hierarchy of Needs is a five-tier psychological theory for human motivation and the progression of human needs, commonly depicted as hierarchical levels within a pyramid. In his theory, American psychologist Abraham Maslow asserted that:
- Humans are motivated to achieve certain needs
II. Some needs are more important that others
III. Those lower-level needs must be fulfilled in order to advance to the next level
Further, every person is capable of advancing through the levels, but people may also fluctuate up and down as needs are met or disrupted.
How Does Maslow’s Hierarchy Apply to Commercial Real Estate?
Maslow’s Hierarchy can be used to model different types of commercial real estate properties and their demand in the marketplace. It also correlates with the stability of particular investments. For example, despite the state of the economy, there will always be demand for properties at the bottom of the pyramid – those that meet basic needs. As you advance up the pyramid, properties become less of a necessity and more of a luxury; thus, demand is more influenced by economic fluctuations, and the investment is less stable.
Let’s take a look at how different types of commercial real estate can meet various needs.
“Basic needs” are commonly defined as air, food, water, shelter, sleep, and clothing – in other words, what you need to live. To meet those needs, society must have housing, such as apartments, town homes, and even retirement living. Additionally, retail stores such as grocery stores and big-box retailers can provide the clothing and food required to survive.
“Safety needs” are commonly defined as health, security, morality, safety, protection, stability, and law and order. While most of us do not live in constant danger, humans are still driven to provide or have access to safety for ourselves and our loved ones. To meet those needs, society must have properties such as law offices, police stations, and fire stations, as well as medical offices and hospitals. To reference the evolutionary need of “fight or flight”, having these types of properties attracts people to specific cities and areas, and neighborhoods that are perceived as being unsafe often struggle.
“Belonging needs” are commonly defined as friendship, trust, community, family, relationships, and social bonds and connections. Types of properties that support these needs include community centers, schools, and churches. These venues encourage members to gather for purposes such as group activities, information, and social support.
“Self-esteem needs” are commonly defined as confidence, respect, status, trust, reputation, social recognition, and achievement. Properties that supports these needs are starting to lean more toward luxury rather than necessity. They include properties such as gyms and health clubs, country clubs, spas, luxury car dealerships, high-end shopping districts, wineries, luxury hotels, and yacht clubs. Use of these properties is meant to indicate status and high social and economic standing, and typically demand is tied to a growing economy.
“Self-actualization needs” are commonly defined as self-fulfillment, personal growth, social compassion, and problem solving. At this level, you are investing in properties that help the community or help others. Impact investing supports this need, which refers to real estate investments that drive social change, such as mixed-income housing, solar farms, and co-working spaces. They generate social, cultural, or environmental benefits, along with financial return.
When considering where you want to invest in the commercial real estate market, be sure to take these needs into consideration. Remember, every community will be in different stages of the pyramid. And while needs at the bottom of the pyramid may be in higher demand, those at the top will be of higher desire.
If you liked this post, consider reading Adapting to Changing Opportunities in the CRE Market.