There are a variety of trends, economic and political factors, and other forces driving change every day in the commercial real estate industry. These evolving market conditions require firms to regularly evaluate and adjust their strategies. One these influences is demographic shifts, which are effectively driving change in the CRE industry and shaping the future of this market. While Millennials seem to get all of the focus these days, Baby Boomers are currently one of the most influential generational cohorts in the marketplace. An aging population and their impending retirement will have major implications for the commercial real estate industry.
Who are the Baby Boomers?
Baby Boomers are the generational cohort preceding Generation X who were born, according to Pew Research Center, between 1947 and 1964. There are currently approximately 79 million Baby Boomers, making up about 1/3 of the country’s population. Every day, 10,000 Baby Boomers turn 65 years old (or approximately 7 people per minute), a phenomenon sometimes referred to as a “Silver Tsunami”. This will expand the size of the older population so that by 2030, 1 in every 5 residents will be retirement age.
Baby Boomers exhibit a unique set of traits. They were the first generation to grow up expecting the world to improve, after several decades characterized by war and recessions. They experienced peak levels of income and contributed heavily to a rise in consumerism. Even today, they demonstrate a strong work ethic, with almost 60% currently or planning on staying in the workforce and delaying retirement. Further, this generation is expected to enjoy a longer lifespan than generations prior. As such, the market (and demand) will continue to grow.
The Baby Boomer Impact on CRE
As Baby Boomers age, retire, and enter their “second life” of freedom and flexibility after decades in the workforce, many asset classes will see greater impacts from this influential generational cohort.
There are four generational cohorts currently co-existing in the workplace: the Silents, the Baby Boomers, Gen X, and Gen Y (or Millennials). Baby Boomers are staying in their jobs longer than their older counterparts did and many are, as mentioned earlier, delaying retirement. While some will continue to work full-time, others will transition into a part-time role or even explore a “secondment”, or another career to keep them busy during the next few decades of retirement-living. These “second careers” are typically roles that provide meaning such as in education, nonprofits, consulting, or entrepreneurship. To be sure, aging workers aren’t going anywhere anytime soon.
However, the contrast of Baby Boomers to Millennials working simultaneously is proving challenging for many organizations. Companies need to design a multi-generational office that meets the different needs and expectations of each demographic. For example, Baby Boomers want more personal space while Millennials want areas that promote collaboration and multitasking. Designing open floor plans with mobile furniture gives employees the flexibility to create the types of spaces that they need to be productive and successful at work.
Apartment living is typically associated with Millennials looking to be near their jobs downtown or who want to be in the middle of buzzing city life. However, Boomers actually account for more than half of US rental growth in the past decade, and the number of renters over the age of 65 is expected to double by 2030.
As Baby Boomers retire and downsize, many are staying in the same geographic area where they spent much of their life but relocating instead from the suburbs into the city. A recent Freddie Mac survey found that by 2020, over 5 million Baby Boomers will be renting their next home, but only 18% would consider moving to another city and 24% to another state, opinions that are likely motivated by the desire to be located near children and grandchildren. Eight out of ten Baby Boomers actually prefer to be in an urban area throughout their retirement, citing the need to be closer to family and amenities, as well as the flexibility that enables Boomers to travel and vacation without having to worry about the upkeep of their home.
This generation’s presence in the multifamily market is growing due to the desire to shed the burdens of homeownership, but they are still a very physically and mentally vital group, with over 2/3 of those over the age of 65 reporting no limitations in normal activity. Today’s active seniors want the benefits offered by city-life, such as a walkable community, cultural activities, dining and shopping, parks, and libraries. This generation also prefers amenity-rich communities with upscale interiors and luxurious finishes – in other words, resort-style living. Service-based amenities such as concierge service, dog walking, package delivery, and social activities are helping to further pull this demographic into the rental market. And compared to renting to Millennials, Baby Boomers are less likely to look for concessions or to apartment-hop every 1 – 2 years. In fact, they are more likely to stay in one place for longer than any other cohort, resulting in some of the lowest turnover rates.
While Baby Boomers are not flocking to Florida as has been predicted, they are indeed downsizing their homes, opting to move into smaller spaces that are easier to maintain such as apartments and condos. However, that doesn’t mean that they want to get rid of all their possessions when they move into a new place. Many people in this generation have furniture, heirlooms, and belongings that they have accumulated over the years and want to pass down to their children and grandchildren, which is where self-storage comes in.
When Baby Boomers move for retirement, they relocate to a home that is approximately half the size of their former living space, which is quite a bit of downsizing. Many Baby Boomers have also accumulated sizable wealth over the years, the result of decades in the workforce, equity, long-term investments, and inheritances. They now control over 2/3 of the disposable income in the US. This wealth enables them to spend money on luxuries that include RVs, cars, and even collectibles such as art, which of course need to be stored somewhere as well.