Why Investors Should Be Tracking Population Patterns

San Diego has one of the largest millennial populations in the country. According to a recent report from Cushman & Wakefield, millennials make up 31% of the market’s population, and gen-Z is a close second. Investors should take note of these population dynamics, especially investors and owners of office product. We sat down with Jolanta Campion, director of research in San Diego at Cushman & Wakefield, to talk about how the population is impacting commercial real estate today and in the future.

GlobeSt.com: How is the strong presence of millennial and gen-Z demographics in San Diego impacting investment?

Jolanta Campion: Millennials and Gen Z depend on technology. Millennials invented the sharing economy out of necessity, taking advantage of new sharing and social technologies. They connect with friends instantly with one click. They prefer to live in urban areas where there is more to do. Expect to see suburban markets (87% of San Diego’s office inventory) to transform to cater to their needs and form smaller downtown areas within submarkets in a not so distant future. With many Gen Z children still in school, many of their shifts have yet to emerge but that is only a matter of time. They grew up with Internet access from an early age, know little privacy, have multi-cultural friends and value diversity.

Both generations are eager to voice their opinion and rank everything from schools and teachers at an early age to employers and service providers once they become independent. Expect to see rankings of real estate such as location and amenities to become a norm. Any real estate property lacking technology will struggle compared to properties that offer a 24/7 environment. Millennials expect a world where everyone is just a text, email or Facetime away and can collaborate across time due to flexible work schedules.

GlobeSt.com: How will the population patterns impact the office market and office investment?

Campion: Incubators, co-working spaces, start-up spaces, innovation centers, creative office, research institutes – these represent just some of examples of growing portfolios of workspaces fostering tech-driven innovation economy. Requirements for state-of-the-art flexible meeting, event, and community spaces, well-appointed multimedia game and entertainment rooms, dedicated tenant lounges with work-friendly gathering spaces and even a concierge services are growing.

San Diego’s office inventory is rapidly aging. Only 8% or 5.7 million square feet of current existing inventory was built 2010 or after. At this level, there is not enough new supply to satisfy tenant demand for new and modern office space. An opportunity for redevelopment lies in the 70% of office inventory that was built prior to 2000. In fact, we have already begun to see an uptick in redevelopment projects as a result of aging inventory. Meanwhile, only 2% of San Diego’s current existing inventory was built in 2010 or after. At this level, there is not enough new supply to satisfy tenant demand for new and modern industrial space. An opportunity for redevelopment here lies in the 82% of industrial inventory that was built prior to 2000.

GlobeSt.com: How are office amenities changing in response to the strong presence of millennials in the market?

Campion: Millennials and younger generations value experiences.  Thus, in their workplace, they demand highly amenitized office space/work environments while pushing performance around health and wellness. Fitness centers, lockers, bike racks, amazon delivery lockers, choices of farm-to-table and gourmet cuisine options within a walking distance are sought after. Mobile services ranging from car wash, oil change, gas stations to wellness and other wrap-around services can be shared among landlords as this generation of tenants invented the sharing economy.

GlobeSt.com: Have you started to see these trends take form in San Diego?

Campion: In order to appeal to tenants, landlords will respond to these preferences with more projects like The Park in Sorrento Mesa which offers a 7-acre park, indoor/outdoor fitness centers, spa-quality locker room, sports courts and fields, meditation gardens, walking paths, four restaurants (including farm-to-table options), event stages and gathering places.