The future of the office sector is in a questionable state as baby boomers retire and new social drivers of demand increase. While demographics are a way to predict some uncertainties that await an aging real estate industry, population statistics like income levels, age, ethnicity and education can only dig so deep. Understanding human values and what motivates people is a far more accurate compass in a changing marketplace of millennials and the soon-to-emerge Generation Z.
What is known as psychographics—the study of personality, values, opinions, attitudes, interests and lifestyles—arose out of the consumer products industry and is intimately tied to real estate value, according to Mark Stapp, executive director of the master of real estate development school at Arizona State University.
During a recent seminar at the 2015 NAIOP Commercial Real Estate Conference in Toronto, Stapp told a packed room that as a “bulge” of millennials—18 to 34 year olds according to Deloitte’s TMT Predictions 2015 study— is set to take over the marketplace, the industry must think about the role psychographics plays in strategic thinking.
“Psychographics breaks down populations into very fine groups around a set of values regarding urbanity and lifestyle,” he said. “Those two things are becoming very important in our decision-making process and get us thinking about the role design plays in our success, in how we use design to help drive strategy and competitiveness.”
The people inside buildings are becoming the main focal point of the industry, not just the buildings themselves.
“This is a competition for employees,” said Stapp. “Real estate is nothing more than the physical framework we hang society on top of. So understanding society’s wants and needs is important to understanding what drives value in real estate.”
With that in mind, David Gerofsky, chief executive officer of First Gulf Corporation, added that people today are looking for different kinds of office space.
“When I sit down to negotiate a deal with a tenant, we have a different group of people sitting at the table than we did 15 years ago,” he said. The HR department is there and interior design firms are also there.”
First Gulf recently relocated Coca Cola’s Canadian headquarters, a deal which was driven more by HR and the interior designer than anything else. The former head office was located in suburban Toronto.
“You were walking right into the set of Mad Men, state-of-the-art circa 1965, and a big parking field and lots of enclosed offices; you would gasp for air when you walked in the door,” said Gerofksy. “Everyone drove to work.”
Now, in the new head office located in a historic building in downtown Toronto, 400 to 500 employees take up about 100,000 square feet of space. Since it was located in a good public transit environment, one of the first things the company wanted to do was remove parking. The company also created a more social, open concept space with a wireless-friendly outdoor terrace for meetings and events, and implemented better air quality and natural light.
“It’s not cutting edge technology, but it represents an employee-centered development,” added Gerofsky. “Today, it’s finding out where my up-and-coming employees are coming from and that’s where I need to be. I need to be where my employees want to live.”
Andre Kuzmicki, executive director of the program in real estate and infrastructure at York University’s Schulich School of Business, said it’s important to understand the underlying human behaviours of the mobile technology changing the workplace. This human knowledge is something the industry must always keep in mind. Part of this means understanding when social connectivity was introduced.
Stapp reminded the audience that when the iPhone was released in June 2007, the App Store opened the following year in 2008, right as the recession tumbled across the United States.
“A couple of things were happening at the beginning of the recession,” said Stapp. “The millennial population was just beginning to emerge into the workforce and into the consumer segment of their life, and at the same time, this disruptive piece of technology occurs simultaneously with the new population that’s going to become an economic driver.”
The ability to stay connected has only become easier, he adds. And it’s affected businesses that ultimately impact the kinds of spaces needed in real estate.
Such a “convergence of population change and economic recession” alters values of the population, and this is all occurring with technology. As a result, an affordable and social sharing economy has surfaced, evidenced through the emergence of secret Facebook groups where millennials barter and trade products and services, redefining the meaning of ownership. Transit sharing services like Uber or car polling allow people to live in places they can afford without having to pay for a car or parking.
Yes, millennials are slower to marry and move out on their own, adds Stapp; however, critical to these facts is how millennials are finding jobs, how these jobs are paying and what millennials do with themselves and their money.
“Because of different things that happen in your life, you have different experiences, which give you a different set of values,” he said. “Three years from now, Generation Z will start entering the workforce; we’re just beginning to understand Generation X and starting to understand the role millennials play.”
What is also important to understand, according to Stapp, is that the industry is competing for space and occupiers are competing for employees. These employees are a population that wants to do good and “make a tangible difference in the workforce.” How does a real estate company use this information in its strategic plans?
“I think its investment risk mitigation, establishing resiliency and sustainability,” Stapp pointed out. “Those things require that you understand how you evolve and sometimes that evolution has to happen much faster than you would like it to.”