The past two years have been marked by noticeable uncertainty. There has been unusual political and economic uncertainty from China to the United Kingdom to the United States. Many more questions have been raised than answered by the ongoing rise of technology developments pertaining to eCommerce, artificial intelligence, and autonomous vehicles. Commercial real estate certainly has not been spared from this ambiguity.
Corporate tenants are facing many challenges as they navigate through 2018. As global unemployment nears pre-Great Recession levels, no challenge is greater than the struggle to find, attract, and retain a high-quality workforce. There are three trends that are impacting how global corporations think about their real estate portfolio as a human resources tool that can assist with talent recruitment and retention as well as improve focus, teamwork, learning, and collaboration.
Millennials, born after 1980, are now the largest generation in the workforce. Baby Boomers are beginning to exit into retirement as the oldest of them are now in their early 70s. A number of factors – including improved health and the economic hit of the Great Recession – have led to Boomers retiring at a slower pace than generations before them. However, now that they have been “unseated” as the largest working cohort, corporate decisions will be driven more and more by younger generations.
One concerning statistic from Gallup is the fact that millennials are the least engaged generation in the workforce. This has potential impacts on effectiveness and creativity in the workplace, but also will make it harder to retain needed talent. Millennials also indicate higher likelihood of looking for and expecting to be at a different job in the next year. Accordingly, companies already stressed to fill open positions and find the right talent will need to be focused on making their workplaces the desired location for employees.
This point is especially salient for companies in and around the nation’s capital. According to a recent national survey, Washington, DC is home to the highest share of Millennials, which makes up nearly 35% of the total workforce.
According to a Deloitte survey of millennials, flexible work arrangements have a positive impact on how employees view themselves, their role, and their company. For example, millennials who currently work in a “highly flexible” workplace are more than twice as likely to have positive feelings about their organization’s financial performance. These workers are also considerably more positive on their own engagement, productivity, and personal well-being.
Paying close attention to office configurations can drive positive business outcomes while optimizing cost layouts. In a search for cost and space efficiency, office density has increased more than 8% since its trough in Q3 2009. At the same time there has been a movement away from “me” space (i.e., large offices) towards a dramatic increase in collaborative spaces. In a study conducted by Cushman & Wakefield, 41% of companies in the financial services, technology, media, and telecommunications industries have dedicated over a fourth of their office space to collaborative space. While compressing workers’ personal space, increased collaborative space provides the critical flexibility within the office for different types of work.
Flexibility is a key need in today’s office space. In the Washington, DC region the flexible and collaborative space trend is evidenced by the rise in popularity of co-working space, with well over 70 area sites housing thousands of office workers. These spaces are occupied by startups and established companies alike.
CBD AND THE SUBURBS
The future of the suburbs is bright, it just may look a little bit more like the urban core. Much ink has been spilled about how educated millennials only want to live and work in the urban core. It is true that this generation has rented for longer than previous generations and that many cities have seen increased development over the past ten years. This trend is not driven primarily by an antipathy for the suburbs, but there are several factors driving young workers to rent longer in urban or CBD settings. Millennials are more focused on proximity than their older colleagues. When asked to rate the importance of specific attributes in home purchases, they place higher importance on proximity to work, to friends/family, and to public transportation.
The desire for this proximity is something that can be offered to millennials in the suburbs as well as in urban cores. The suburbs may very well eventually be the location of choice for millennials, just as it has been for generations before, the types of environments they are looking for may be very different. Millennials are seeing their wages grow, they are paying down debt. Many of them are getting married, and they are even starting households. In fact, in 2016 they were the largest group of buyers, accounting for 35% of all home purchases. And, half of those purchases took place in the suburbs. Only 17% of millennial home purchases were in the urban core.
The Washington, DC suburbs of Southern Maryland and Northern Virginia have attracted dozens of retail tenants to town centers and mixed-use developments. And in recent years, those suburban locales have been adopting city-like characteristics like walkable sidewalks, increased public transportation, and rejuvenated cultural centers.
Occupiers in suburban locations will have more success attracting talent (of all ages) when they are in urbanesque environments with proximity to high-quality office space, multiple transportation options (i.e., public transportation, greenways, biking, easy highway access), and affordable housing.
These changing factors are something all companies should keep an eye on. The changing labor and lifestyle dynamics in the United States should be considered as organizations plan for the future. But the impact of these changes should especially be considered when making real estate decisions that can impact the future of the organization.