Most economists agree that home sales will remain in a slump for at least the next few years, but demand for apartments is accelerating. This trend is expected to continue over the next decade, due largely to the echo boom generation's (Echo Boomers) coming of age and entering the rental market.
Born between 1979 and 2000, the nation’s 80 million Echo Boomers, also known as generation Y (Gen Y) or millenials, represent more than 25 percent of the U.S. population. The sheer size of this generation indicates that “its impact on real estate and the economy in general will be as striking and long-lasting as that of the baby boomers,” says Leanne Lachman, Urban Land Institute (ULI) governor and president of Lachman Associates, a real estate consulting and research firm that recently concluded a nationwide survey of Gen Y for ULI.
Both the ULI survey and an earlier study by RCLCO, a marketing consulting and research firm headquartered in the District of Columbia, suggest that this group is the primary catalyst for a surge in urban multifamily development for the near and mid term and for the eventual return of the housing market.
The ULI survey of 1,241, 18- to 32-year-olds revealed that Gen Yers expect to buy a home within the next three to five years. But Patrick Phillips, the Institute's chief executive officer, says he believes this goal may be delayed for years due to fallout from the recession, weak employment, stricter credit rules and mortgage market reforms.
Meanwhile, the rental market will benefit, as Echo Boomers increasingly graduate college, enter the workforce and move into their own digs. “As America’s emerging retail and housing consumers, their activities are crucial to our economic recovery and beyond,” Lachman said.
Carol Ruiz, assistant chair of ULI’s Residential Neighborhood Development Council (Gold Flight), and principal at Red Rocket LA Marketing and PR, points out that Echo Boomers already have massive buying power to the tune of more than $200-billion yearly. “It's been said by experts that if your company doesn't learn [how] to market to this group, you won't have a company by 2020,” she says. Furthermore, the RCLCO survey, which included 3,200, 20- to 28-year-olds, indicates that GenY represents $1.6 trillion in earning power, outstripping the previous generation’s $125 billion in earnings.
Having grown up with technology, Echo Boomers are far more technologically savvy and better educated than any previous generation. However, they are financially challenged due to the poor economy and other factors like a heavy debt load from student loans.
Gary Painter, an economist at the University of Southern California Lusk Center for Real Estate, says Echo Boomers face conditions unlike those prevailing at any other time in modern history, which are driving their choices. For example, they will have to change careers—
not just jobs—
one or more times during their lifetimes. Their circumstances require the flexibility that renting provides, points out Courtney Steeple, president of Project Management for Santa Barbara-based Towbes Group, Inc., a residential developer on California’s central coast. “They must go where the jobs are. Renting makes sense because they don’t know where they’ll be in a few years.”
The RCLCO study found that in choosing housing, Echo Boomers are largely driven by proximity to work, neighborhood walkability and price, but other factors also play into their decisions. Melina Duggal, senior principal at RCLCO and coauthor of that company’s study, suggests that successful residential developers will find ways to make housing interesting and affordable to this group.
The ULI and RCLCO studies, along with the census and other demographic and marketing information, provide a comprehensive profile of Gen Y’s unique characteristics and understanding of values, interests and economics that guide this group’s behavior and consumer decisions.
Studies indicate Echo Boomers are more ethnically diverse than previous generations, and welcome diversity in all aspects of their lives. ULI member Duggal noted that they are comfortable with mass transit and want to live in town. They can’t afford high rents and are open to trade-offs to be in the right location.
The Alexan Carlyle is a half mile from
Old Town Alexandria and quarter mile
from the Metro stop.
Photo courtesy of KTGY Group
Bob Champion, a Los Angeles developer who is under way on a $100-million, 214-unit Gen Y project in Hollywood, says, “Developers realize their [Gen Yers] limitations and are building smaller units to keep costs down, but are looking at design innovations that make [new] units more functional than larger units built in the past.” Champion, a member of ULI's Commercial & Retail Development Council (Green Flight), notes that the average two-bedroom unit built today is 800 to 950 square feet (74 to 88 sq m) in size, compared with 1,000 to 1,200 square feet (93 to 111 sq m)
a few years ago.
Design strategies include open floor plans and flexible interior components. Architect Spencer Skinner, an associate partner at BKV Group’s Chicago office, says, for example, that units at Mill District and Eitel Building City Apartments in Minneapolis, Minnesota are on average 100 square feet (9.3 sq m) smaller than the previous size formulary, but live larger. Open floor plans with high ceilings provide a feeling of spaciousness. Galley kitchens have movable islands that include storage and countertops that open up for extra length. Sleeping areas have Murphy beds or movable wall dividers to screen bedrooms from living areas.
Singles units are popular among this group, according to Greg Parker, president of American Multifamily, a developer based in Huntington Beach, California. His company conducted its own marketing survey of Echo Boomers, in which two-thirds of respondents said they prefer a studio apartment to a roommate situation. Therefore, Parker’s Broadway Lofts, a seven-story, 208-unit project under way in downtown Glendale, California features only studio and loft units.
While Echo Boomers are willing to trade space for affordable rents, they have high expectations for interior finishes and service. Architect Rohit Anand, principal at KTGY Group’s East Coast office in the D.C. metropolitan area, who designed the Alexan Carlyle in Old Town Alexandria, Virginia, notes that Gen Yers expect stainless appliances; hardwood, composite flooring; granite countertops; and slick lighting and plumbing fixtures.
In order to offer higher-end interior finishes, designers are cutting costs on the exterior. Anand, a ULI member, says that there is a trend toward wood-frame construction, using cost-effective, prefabricated materials in innovative ways to create interesting architectural effects. He says developers also are jamming more density into projects, putting in 150 units per acre (370 units per ha), compared with 75 to 100 units per acre (185 to 247 units per ha) in the past.
Jack Hannum, a ULI member and vice president of Transwestern, a Phoenix-based brokerage firm, says that with increasing demand from Echo Boomers, value-added strategies are coming back into play. Owners are spending money to reposition properties to appeal to this group, putting in washer/dryer connections, new appliances, larger clubhouses, two-tone paints, and WiFi outside.
Social interaction and a civic-minded value system are hallmarks of this generation and integral to Gen Y lifestyle and behavior. Coined the “we generation,” Echo Boomers are known for their preoccupation with socializing. As such, they desire housing in active, urban neighborhoods and with amenities and services that offer opportunities to interact with peers and enhance the social experience. “They’re very social [and] hang out together more than any previous generation," emphasizes Anand. “They spend more time in the apartment community than their apartments, so amenities are important.”
Dog Wash Station
Photo courtesy of KTGY Group
Architects approach projects from both branding and urban design perspectives, matching shared spaces and project features to the Gen Y profile, says Skinner. The main theme is the urban context, with efficiency and sustainability throughout. Primary to success is location in an urban setting with a mix of merchants, restaurants, and entertainment venues that cater to this demographic.
To accommodate the full array of amenities, developers are putting in larger clubhouses and active rooftops and courtyards that provide fun, festive spaces where residents can congregate.
Locally based developers Georgetown Capital and JBG are planning an organic mix of social amenities and Gen Y-focused retail services at a 265-unit mixed-use project at 14th and U streets in the District of Columbia’s hip jazz district. The two-level active rooftop will include an outdoor living room, gym, bar, and entertainment and recreation facilities. Jocelyn Moore, a principal at Georgetown Capital, said the project will focus on green living, including rooftop communal gardens, Zip-cars, many bike racks, and electric car charging stations.
Gen Yers are animal lovers and pet amenities, like dog washes and pet parks, are very popular, notes Alexis Ames, national marketing director for Phoenix-based property management firm Alliance Residential Company. “Gen Yers are very close to their pets,” she adds. “People meet in the evening to walk their dogs.” Alliance uses the pet connection in its marketing and resident retention program, holding events like pet adoption days and dog parades.
Echo Boomers also prize authenticity, value nonprofit organizations and causes, and are concerned about the environment, says Ruiz, suggesting that marketing strategies that involve causes of concern to Gen Yers can be very effective. She created a series of public relations events to generate foot traffic at Latitude 33, a condominium project in Marina del Rey, California. A recent event attracted 400 young professionals and raised $11,000 for Heal the Bay, a local environmental group.
The RCLCO study called Gen Y “the most civic-minded generation” to date: 61 percent feel personally responsible for making a difference in the world; 81 percent had volunteered in the past year; and 32 percent believe the main purpose of volunteering is exposure to new experiences and people.
Latitude 33, Marina del Rey
The authors suggest that these values carry over to their consumer choices. They noted that 69 percent of respondents consider a company's social and environmental commitment when deciding where to shop, and 83 percent trust a company more if it is socially and environmentally responsible.
Gen Yers are the most connected generation ever and engage in a constant flow of information, but are “notoriously ambivalent to traditional marketing and hard to reach,” continue the researchers, stressing that marketing professionals need to both redefine the message and the way it is communicated. Hannum suggested that a powerful marketing tool among this group is personal recommendations–what their friends have to say about where they live.
Ruiz notes that many Gen Yers have canceled cable TV and get information via computers, iPads and smartphones. Leasing professionals, therefore, are using social networking–Facebook, Twitter, YouTube–and electronic communication tools to reach this demographic. Ames emphasizes that property managers must understand how to communicate with Gen Y and package and deliver information in a convenient, meaningful way.
Some Alliance properties use iPads for leasing activities. Ames notes that Gen Y is used to having information customized around their interests. For instance, Amazon makes recommendations for items customers might like based on previous purchases. Alliance leasing agents take a similar tact to sell prospects. They might ask them if they like wine bars, and then use the iPad to introduce them to the most popular one in the neighborhood.
Ames uses GoogleAds and Craigslist for advertising. GoogleAds allows properties to target information of interest to local Gen Yers, and Craigslist enables them to identify days and type of information that gets the most hits.
Ames says that one of the most effective communication resources is the smartphone’s QR code application, which allows Google Maps to connect the user with a property’s mobile website. Mobile websites enhance the user experience for smartphone users by enlarging navigation tools and print. “This offers an amazing opportunity to communicate on a personal level with prospects,” she says, explaining that a smartphone shows users all properties in a neighborhood. When they click onto a property’s mobile website, users can get current rent specials and communicate with property managers by texting questions or chatting in real time.
Eitel Building City Apartments in Minneapolis
Photo courtesy of BKV Group
The researchers believe the majority of Echo Boomers will buy homes when they enter their 30s, but do not expect their preferences or attitudes to change much. The need for ample free time and connection to others is likely to influence Gen Y purchasing decisions when they actually buy, Phillips pointed out, suggesting they will continue to prefer compact, walkable, urban communities close to transportation and work.
This notion is already getting legs among the oldest Gen Yers, who are buying homes. Parra Design Group, a design-build firm in Houston, Texas is targeting Gen Yers at a new townhouse project in that city’s Upper West End. Located inside the loop, between Memorial and downtown, this LEED certified project has three units on a 50- by 100-square-foot (15-by-30-sq-m) lot with a common driveway. Ideally, two lots, with six units, share one driveway, notes principal Camilo Parra.
Gen Yers apparently consider the project’s urban location a fair exchange for the high density and lack of a yard. Noting that shared driveways have become de facto backyards, he says, “They string lights across the driveway to create connectivity and do parties and barbecues.”