Our new decade brings with it demographic shifts that will impact the way people live, work, shop and relax. They’re also bound to impact the real estate sector in multiple ways and Cushman & Wakefield has prepared a new report to examine them.
While the report offers a global perspective, Samantha Sannella, managing director of strategic consulting for Cushman & Wakefield in Canada, provided RENX with insights on how the Canadian real estate market may be affected by the aging of Baby Boomers, the progression of Millennials through the stages of their lives and the difference between Millennials and Generation Z through the 2020s.
Implications include diverging trajectories of labour force growth, an increasing war for talent and the need for new approaches to developing and changing workplace strategies.
Investors and building occupiers will be simultaneously affected, requiring them to navigate these changes and what they mean for growth strategies into the future.
Baby Boomers born between 1946 and 1964 have made a lasting impression on many aspects of the property markets, including the rise of big corner offices, suburbia and shopping malls.
But there has already been significant change in each of these areas: younger generations have to varying degrees embraced urban living, more collaborative workspaces and online shopping.
According to a survey conducted by LoyaltyOne, 70 per cent of all boomers own smartphones and value the convenience online shopping and home delivery offer, but 84 per cent prefer to shop in-store.
These boomers still control about 70 per cent of the disposable income in Canada due to inheritances, longer careers in the workforce and postponing retirement. They also have less debt than younger generations.
However, many boomers have already retired. Many more will have left the workforce by the end of the decade.
Industries such as golf, travel, lodging, vacation homes, vacation rentals and luxury apartments have recorded growth since 2011 because of this aging cohort.
Sannella said health and wellness-oriented businesses, accessible and senior-friendly buildings that follow universal design principles, unique and forward-thinking residences designed and marketed toward the ‘new senior,’ and active lifestyle communities stand to benefit most.
“Moreover, there are more senior women than men, so businesses that are skewed toward females will be more successful,” said Sannella.
Sectors catering to the elderly such as medical offices, urgent care, in-home care, assisted living and retailers selling products to address aches and pains grew rapidly in the last decade, a trend expected to continue.
Canada has a shortage of quality hospitals and healthcare facilities, and there’s a need to be smarter about how they’re built.
“It makes no economic or financial sense to put administrative offices inside a hospital facility. Not only does it double the cost of the office facilities, it poses a hazard to workers for infection and disease,” Sannella explained.
“As well, we send patients to hospitals for non-emergency medical needs, such as stitches.
“While these facilities can be adjacent to the hospital, there is no need for them to be embedded into the standard emergency room protocol, where infrastructure is at a premium.”
Higher wealth among boomers means they can afford more mobile services (such as salon services at home), and Sannella said seniors housing providers also need to adapt.
“Seniors residences have far too long followed a model that contributes to depression and isolation. We should look to other countries, such as Denmark and Sweden, who have innovative solutions,” she said.
“Baby Boomers value life-long learning, entertainment and social experiences. These types of spaces should be front-and-centre in residential development.”
Generation X is comprised of those born between 1965 and 1980. C&W believes it’s a demographic that has somewhat fallen through the cracks and hasn’t received as much attention as either boomers or Millennials. It therefore didn’t analyze it for the report.
Millennials, also known as Generation Y, are those people born between 1981 and 1996. They’ll comprise the biggest part of the workforce and are expected to have the fastest growth in net wealth this decade.
“Millennials earn more than previous generations at the same age, but carry much more debt,” said Sannella. “The idea of just-in-time services appeal to this generation, as they may not be able to afford to purchase, but can rent services, spaces and objects.
Studies have shown many Millennials believe businesses should try to protect and improve the environment and enhance society in general.
“The most successful facilities will go beyond building code or LEED and provide opportunities for real innovation in their facilities, such as solar walls, herb gardens, native landscaping and beekeeping,” said Sannella.
“Savvy builders and developers will also create opportunities for tenants to invest in tenant improvements while being more innovative, such as leveraging their buying power to implement movable wall systems such as DIRTT, which are manufactured off-site, create less waste and provide a superior solution to drywall partitions.”
Most Millennials still want to work in an office at least part of the time. However, digital technology developments should increase remote working, as it saves time and energy through reduced transportation and building needs.
“Many (Millennials) live in smaller residences and working from home is next to impossible, so the office will not go away,” said Sannella. “The design will just shift.
“To counterbalance the social isolation that many Millennials experience, office spaces must become social hubs. Authentic experiences are preferred, so opportunities for face-to-face interaction is necessary — even if digital.
“Think of a virtual water cooler where you can see workers in other countries real-time as they navigate their day. “
This has already started to impact traditional office dynamics with the growth of collaboration spaces, quiet zones and lounge areas. Densification, flex offices and co-working have contributed to lower office absorption rates compared to previous decades, especially among smaller tenancies.
Densification also increases wear and tear on buildings and their systems.
Work-life balance remains important for Millennials so office building amenity offerings should evolve to include more food and bar concepts, gyms and fitness centres, and childcare facilities.
Child-friendly restaurants which meet a growing range of dietary needs, activity-based retail, entertainment that engages Millennials and their children, and fitness concepts offering in-house childcare will be prized.
“I believe co-living is going to explode,” said Sannella. “The idea of creating a lifestyle community where you essentially rent space, furniture, objects, programming, et cetera will appeal to Millennials and the next generation as well.
“Due to income-to-debt ratios, and the fact that most Millennials are not prepared to do without, we will see the rise of these highly curated and highly programmed facilities.”
Millennials have been perceived as perennial renters, however global research shows 40 per cent own their homes. Of those who don’t, 80 per cent want to.
Price sensitivity could make less urban-centric options more attractive, especially those that are walkable or can be transformed into vibrant hubs.
Lower-cost cities, suburbs with strong civic centres and transportation amenities, and up-and-coming neighbourhoods will appeal to those seeking value.
“Most urban residences are not affordable for Millennials, and salaries have not kept up with costs — especially in Toronto and Vancouver,” said Sannella. “Nor has infrastructure, such as rapid transit, made it easy to commute.
“Older Millennials with families will find it extremely difficult to live in smaller urban condominiums and those that do must have a minimalist lifestyle to make it work. Just as San Francisco became a childless city, I fear that Toronto may, too.
“While the rise of suburban areas is inevitable if the economy maintains its current pace, the vibrancy of the inner city will be diminished if it is no longer affordable for families.”
If and when boomers downsize on a large scale, it could at least partially reverse pressure on single-family home price appreciation.
The report says an increase in single-family rentals, which generally capitalize on the lack of affordable single-family units, could complement multifamily for investors seeking residential options in their portfolios.
Generation Z is comprised of people born between 1997 and 2012: the first generation to live purely in a digital world. Sannella is the mother of two Gen Zers and has first-hand insight into their needs.
“Having had phones, iPads and computers since they were old enough to hold one, this group is hyper-cognitive but have absolutely no patience whatsoever,” she said. “If your elevator is not fast enough, expect complaints. If your facility services are not real-time, then you are behind the times.”
Sannella believes the Generation Z workforce will be ethically driven and know more about environmental sustainability than experts currently employed by building owners. These young people define themselves by interests and causes rather than economic backgrounds and educational levels.
“They search for authentic values, missions and causes, and want to contribute,” she said.
“They are fully accepting of diversity and 20 per cent consider themselves gender-fluid, so expect the need for gender-neutral washrooms, meditation and prayer rooms, and more attention paid to implementing non-offensive colours and spaces that work for all individuals.”
Impact of demographics on cities
The Cushman & Wakefield report also looked at how changing demographics will impact cities around the world. It showed productivity hasn’t kept up with population growth in Toronto and other Canadian cities.
Sannella attributes this fact to three primary factors:
* job growth has been largely focused on service sectors, where it’s hard to measure productivity;
* the resource sector, which has typically contributed to high productivity gains, has been in decline;
* and uncertainty due to the American political climate.
Investment in infrastructure and technology, in addition to modernizing the taxation system, have been suggested as potential ways to increase productivity.
While Canada still presents opportunities for its commercial real estate investors and developers, larger firms may want to incorporate more of a global approach this decade.
“The fastest growing economies are actually in non-traditional investment countries such as Libya, Rwanda, Bangladesh, Ethiopia and Vietnam,” said Sannella, encouraging investors to look “outside of the box.
“These opportunities may require an enormous amount of due diligence, but could yield good returns in the long term for non-risk-averse investors or investors who really want to contribute on a broad scale to the development of a country.”