Investors continue to debate whether core real estate is fully priced in the US and if they should move to value-added assets and non-gateway cities. But over the past 12 months, an emerging social dynamic has made the discussion all the more interesting.
It came to the fore on a number of occasions at AFIRE’s European conference in London this week: the working habits of ‘millennials’ – people born between the early 1980s and early 2000s – many of whom are employed in the booming technology, media and telecommunications (TMT) sectors.
Three miles away from Claridges in Mayfair, where the conference was held, lies the Old Street roundabout in the area of Shoreditch. Recently dubbed Silicon Roundabout due to the proliferation of start-up tech companies, it is the most visible manifestation of this trend and part of a so-called ‘re-urbanisation’ of cities that are emerging as the new capitals of TMT – Berlin, with its ‘Silicon Allee’, being another example.
The effect is being seen across the US. Silicon Valley, the spiritual home of the computer and technology industry in California, is now facing tough competition from nearby downtown San Francisco – as well as New York, Boston and Cambridge – in terms of TMT job growth.
Millennials, it seems, want to live and work centrally, preferring South of Market in San Francisco to the South Bay Area.
According to Janice Stanton, senior managing director at Cushman & Wakefield, 77% of millennials polled want a ‘work-life-play environment’ and their tolerance for how far will drive for things is 10 miles shorter than previous generations. In fact, she told conference delegates, only 78% will obtain a drivers’ license at all.
The ramifications for real estate investors is that new parts of cities are seeing increased demand for residential and office space. And the latter needs to have bike racks, rather than car parking spaces.
Robert Griffin, president for New England Area and US head of investment sales at Cushman & Wakefield, said so-called “cool core” office space, just outside CBD locations were likely to outperform traditional office assets.
He recommended that investors focused on real estate around public transport, or ‘mass transit’ sites. The Transbay Transit Center, a redevelopment in the middle of downtown San Francisco scheduled to open in 2017, cropped up more than once during discussions.
Asked by an audience member whether the ‘millennial effect’ was being overstated, Stanton said it was happening across the US, citing downtown Memphis in Tennessee as an example.
Timothy Walsh, president and chief operating officer at Gaw Capital Partners USA, said his company was focusing on the working habits of millennials and was seeing the trend in Kansas City in Missouri. He said they tended to move to a city first and then look for a job, rather than the other way round.
