The leading edge of the millennial generation (those born between 1982–2004 or 1980–2000, depending on the source) is now entering its prime spending, household formation and employment years. This 90 million-strong cohort is the largest and most diverse in U.S. history. The group currently controls about $2 trillion in liquid assets, according to Wealthfront. By the end of the decade, that number will grow to $7 trillion. From there, it will grow exponentially as millennials enter their prime earning years while receiving a massive wealth transfer from their boomer parents. The economy will be feeling the impact of millennial choices for decades to come.
According to the Goldman Sachs report, Millennials: Coming of Age, this group has grown up during a time of technological change, globalization and economic disruption. That has given them a different set of behaviors and experiences than their parents.
Entering the labor market during the recession, for example, has left large numbers of this cohort un- or underemployed. Unprecedented student loan debt further cuts into available spending. With less to spend, they are putting off commitments such as marriage and home buying. Not wanting to own a house at this point, however, doesn’t mean they never will. In general, millennials have the same goals as their parents — they just are moving toward them more slowly. As millennials reach their peak home-buying years, their reluctance to enter the housing market could change. The cohort’s sheer size, plus its desire to settle down in the future, could lead to a surge in home sales.
Ownership, however, does not appear to be something they currently aspire to. Millennials want access, but they have been reluctant to buy items such as cars, music and luxury goods. Instead, they are turning to a new set of services that provide access to products without the burdens of ownership, i.e., the sharing economy. If this behavior becomes an engrained characteristic of this generation, it could have a negative effect on real estate asset classes such as the self-storage industry, which grew to house the overflow of goods from the boomer generation.
Millennials show less interest in driving than any generation before them. They prefer to walk, bike or even take public transportation to driving their own car. This behavior is one of the factors underlying the resurgence of city living as millennials seek to live, work and play in one area. This poses a real risk to the suburban office market, as well as big-box retail malls. It is also changing the demographics of cities, as millennials and empty-nesters vie for renovated apartments in gentrified neighborhoods, pushing less affluent families to the suburbs.
Speakers at the AFIRE (Association of Foreign Investors in Real Estate) annual conference in February, noted that millennials are influencing the use of space across the board, with retail centers adding “experience” providers such as gyms and movie theaters into the retail mix, and offices reducing space per employee but adding areas to socialize and collaborate. Multifamily complexes need to be amenity-rich, wired for high-speed Internet, and provide affordable smaller, pet-friendly apartments. Operators are finding that they need to add storage space to the front office to accommodate the influx of packages received for tenants who now do their shopping online.
The millennial generation is also the first generation of digital natives, and their affinity for technology shapes how they shop. They expect instant access to price comparisons, product information and peer reviews.
They are using their digital expertise to change not only how they shop but how they invest and finance their future retirement. Over the past three years, according to CB Insights, more than $1 billion has been invested in tech-driven personal finance companies, with a special emphasis on startups targeting young investors. An article in Forbes, “The Recession Generation: How Millennials Are Changing Money Management Forever,” names a few of the better known startups in this space: Wealthfront, which helps young tech workers convert company stock into a diversified portfolio of ETFs; Betterment, which automates savings and asset allocation; and Motif Investing, which allows small investors to bet their money on an industry or trend rather than a single stock.
The millennials are just beginning to impact the investment world, both through changes in the assets themselves, and through changes in how they invest their money in those assets. Understanding these trends will help investors find value in the real assets markets, just as the millennials are doing.
