In this latest edition of the blog, Mark Elliott spoke to our intern Lucien Whitworth on his thoughts of what generation Y and Z are looking for in residential property and what he would recommend based on the portfolio Savills has on offer. Lucien joined us for a short period of time to experience working in the International Residential team before resuming his studies at Oxford University where he is reading English Literature.
It is always difficult in the real estate sector to predict the needs and desires of generations who are yet to collectively invest in property. But, when those generations are exposed to arguably the most revolutionary period of technological advance in history; are part of dramatic changes in our sociological landscape; and are subject to potentially the most turbulent economic climate ever experienced by young adults, doesn’t it make it a whole lot trickier? I am, of course, speaking of the so-called Generations Y and Z. Dubbed ‘digital natives’, these two generations are characterised by a very different world to the one before the 1980s. One where technology nestles in the DNA of society; crippling student debt is a part of life; and rapid urbanisation has become increasingly common.
But what does this mean for the real estate sector, and, indeed, for investors looking to rent to these young professionals who represent over half of the world’s population today? Well, with over 80% of them looking to enter the real estate market within the next 5 years, things are looking positive. But to answer how the property sector must adapt to these new arrivals, we can identify key trends by looking at what Generations Y and Z are looking for.
The digital world meets sustainable living
There is no doubt about it; properties will have to be smart. Y and Z were born with tablets in their hands and are very used to the instant gratification of the online world. This has nurtured a tendency for them to be demanding consumers who have little patience for things which aren’t quite right. Labeled by Time Magazine as “The me-me-me generations”, the only thing these people have known is being able to navigate their lives from behind their individual screens. But, with 86% on Millennials willing to pay more for a home or rental property if it has smart home technology (Wakefield Research), surely this opportunity to digitize homes cannot be missed by the real estate sector?
In order to appeal to Y and Z, both developers and landlords alike must ensure fast broadband and Wi-Fi capabilities as standard. But, with high-tech living becoming increasingly indispensable to normal life, these generations like the idea of keyless locks, mobile-controlled security systems, smart lights, voice-activated assistants, and so much more.
However, not only must homes adopt the newest technology, but Y and Z also want to abide by a greener way of living. In the last 30 years, human beings have flinched at the inconceivable damage they have inflicted on the natural environment over recent centuries, and Y and Z have grown up with this consciousness. They are the pioneers of what seems to be a new age of regeneration and preservation of the natural world, and it is therefore no surprise that 78% of Millennials are willing to change their lifestyle to help protect the environment (Ecowatch). Energy efficient appliances, innovative refuse systems, use of recyclable materials, and a low carbon footprint all attract the younger generations. And, with the rise of smarter homes, a more eco-friendly way of living is becoming that bit easier.
Its crunch time for the real estate sector. To interest Y and Z with property investments, things are going to have to be affordable. Considerable student debt and the difficulty in getting a job means that affordability sits high on Y and Z’s property needs. The Federal Reserve said, in January, that student loan debt in the US has more than doubled over the last decade and is forcing many in the millennial generation to delay buying homes, with the highest increase in debt found among 30 to 39-year-olds.
Student loan debt in the US has more than doubled over the last decade, forcing many millennials to delay buying homes.
And things aren’t going to let up according to a report by the Brookings Institution. People are living longer with their parents in order to save up for a deposit or simply because they cannot afford to rent due to unemployment. And those who can afford it are prepared to cut back on space and amenities if it means reduced housing costs, despite the fact that lots of space appears as a high priority for Y and Z (Property Shark). Money, or a lack thereof, is everything.
The real estate sector must be aware that providing low maintenance costs, affordable rents and potentially smaller properties might appeal to a younger target market.
City living facilitating lifestyle
Due to the fact that Generations Y and Z supposedly face more competition for jobs and are under more financial pressure than generations before them, they are often perceived as being aspirational, ambitious, and driven by what they want to ultimately achieve. These individualistic generations are looking to the bright lights of the big cities to fulfill their lifestyle and career dreams. The expectations nurtured by a digital influence of instantaneous results translates into Y and Z’s desire for easy and fast access to vibrant and prosperous hubs.
Those in the property market should bear in mind that job prospects in cities with fast economic growth are a fundamental draw for Gen Y and Z. Yet, although they want to have rapid access to amenities at their disposal, they equally want somewhere which feels like their own space. In a recent survey conducted by the NAHB, 66% of Y and 60% of Z would prefer to live in suburbia rather than the city center. They want to be in touching distance of somewhere around which the world revolves, but at the same time find a medium where they can enjoy their personal space as well.
Large, multifunctional spaces
So, Y and Z dream of space, and lots of it. Indeed, limiting financial factors might force youngsters into opting for a lower rent over their palatial condos, but, nonetheless, expansive, open living areas sit high on Generation Y and Z’s list of features for the perfect home.
Emerging from Gen X’s previous style of separate rooms with individual purposes, Y and Z are pioneering the move towards an all-inclusive, one-room-serves-all type of property. They want smart layouts which permit a smooth transition from the dining room into the drawing room and the kitchen. Given that these young adults are used to an age where everything, from your new job status to what your dog had for breakfast, is posted on a virtual platform for anyone to see, where the public has become the private, the concept of segmented living seems backward. Versatile spaces allowing diverse functions should be a priority for developers and landlords alike.
However, factoring in affordability and the increasing demand for housing in urban and particularly suburban areas from Y and Z, their dreams of more living space might have to be put on standby. Homes with a smaller area which is compensated for by multifunctional furniture appear equally as attractive to the younger generation. Younger tenants these days want a room to socialise in, which can also be easily transformed into a gym. Fold away dining tables, a seat-cum-storage cupboard, and a decent sofa bed, all appear to be good items to include when furnishing a smaller property.
So, what can Savills offer to accommodate all these factors?
Based just outside Cambridge City Centre, this new development provides both affordable and stylish housing in the suburbs of one of the most sought-after places to live in the UK, an hour from central London. Only a short bike ride away from the technological hub which is home to tech giants Apple and Huawei, this is a fantastic opportunity for Y and Z to be amongst a thriving and dynamic population of young people, with a plethora of job openings. The development itself is as sustainable as it gets. With an intelligent refuse system, the largest water recycling operation in the UK and an energy center which reduces CO2 emissions, this state of the art housing should appeal massively to Generations Y and Z.
Seattle is possibly the most exciting investment opportunity currently in the USA. The headquarters of tech giants Amazon and Microsoft call this place home, making it a booming place for innovation and creativity. With an increase in median wages of 15.4% and an unemployment rate below 3%, it is no surprise that Seattle is the most popular city for Millennials in the USA to migrate to, according to Business Insider. As a place which offers a clean environment; is a cultural center for entertainment; and boasts home prices which are considerably lower than those in other West Coast cities, this is not just attractive as a city to live in for a younger generation but also realistic.
Situated at the entrance to the city center, Elizabeth Tower is within walking distance of the main financial district and leisure amenities. With employment growth expected to sit at 1.2% a year and housing prices anticipated to grow by 22.8% between 2018 and 2022, Manchester looks like a hot investment opportunity for the younger generation. The expanding population and growing economy of the UK’s third largest city have meant that international and national businesses alike, such as HSBC and the BBC, have established important bases here. Manchester is where affordable housing prices, in modern surroundings, facilitate promising employment prospects.