The Race for Millennial Tenants

 OP RESIDENTIAL

By Ann Matheis

For several years now, the rental market has been booming. New apartment complexes and mixed-use facilities seem to be under construction on every corner, while owners of existing properties have been raising rents by double digits annually in major metropolitan areas. Demand has been outstripping supply because of a number of factors. The foreclosure crisis left many people unwilling or unable to purchase a home, and a growing number of college graduates are already carrying the equivalent of a mortgage in student loans.

But as any seasoned veteran of commercial real estate construction knows, business is cyclical and supply eventually outpaces demand. In many major US cities, where rental prices have been rising at a blistering pace, there are early warning signs that the market is beginning to cool. According to a recent rental report in Business Insider, “Among the top ten rental markets, we saw declines in both of the most expensive markets, San Francisco and New York, a trend that continued from last month, and half of the twenty priciest saw falling rents, including cities like San Diego, Miami and Honolulu.” The reason? Supply is finally starting to outpace demand. The report goes on to note that, “An onslaught of new supply in form of high-end apartment and condo towers is pressuring everything below.”

For now, average rental rates are still continuing to climb, albeit at a much slower pace. But as the rental market begins the inevitable process of correcting the imbalances in supply and demand, project managers, architects, building owners and even facility managers would do well to reassess their current projects or facilities and determine what can be done to make them more appealing to the group that recently surpassed the baby boomers to become the largest living generation - millennials.

High-Tech Expectations

For years, the mantra in real estate has been “location, location, location.” But for this new generation of renters, while a project’s location is still important, developers must find ways to set their projects apart from their competition, or, at the very least, keep up in the “amenities arms race.”

But before you add another swimming pool or tennis court, consider what’s important to this generation. Having been steeped in technology since birth, millennials have a much greater appreciation for the level of convenience it can provide in everyday life. Colleges and universities recognized this trend several years ago and have been installing electronic access control systems that allow students to enter their dorm room with nothing more than their cell phone or a smart card.

Now they’re leaving their college dorms and entering the rental market expecting a similar level of sophistication in their new apartments. In a recent survey conducted by Wakefield Research, 86 percent of millennials surveyed indicated that they are willing to pay more for a “smart” apartment, meaning one that is equipped with automated or remotely controlled devices, compared to only 65 percent of Boomers.

It’s no surprise that this tech-savvy generation is keenly aware of the role technology plays in improving one’s lifestyle. What is surprising is the level of importance it occupies compared to more traditional amenities. The same survey found that 61 percent of millennials would rent an apartment specifically because of its electronic access control features, and a shocking 44 percent would be willing to give up a parking space in favor of living in a “high-tech” apartment. And they’re willing to pay a premium for these conveniences as well - up to 20 percent more, which can equate to hundreds of dollars each month.

People from all walks of life are increasingly using their smartphones for basic tasks, but millennials are by far the most technologically active. Although it’s fairly common to use a smartphone to call for a ride or track exercise, Millennials are already using them to request maintenance, pay rent and even renew a lease. It seems logical, then, that physical keys are steadily being replaced with the one device they rarely lose track of - their smartphone.

Data shows that once a millennial resident has experienced the convenience of a keyless lock, they prefer them over mechanical locks and tend to worry less about safety - and for good reason. Traditional locks can be picked and bumped, and keys can be stolen or borrowed to create replicas. However, smart locks without cylinders are fully pick- and bump-proof because there’s no key – which means there are also no keys to copy and keep track of.

With more than 40 percent of students surveyed already using a keycard or fob instead of a traditional key, it’s anticipated that the multi-family market will experience an influx of resident applicants who not only prefer, but expect keyless locks. Those properties that have upgraded their facilities with this feature will prove much more competitive in recruiting and retaining residents throughout all phases of the business cycle.

Ann Matheis is the marketing director, multi-family for Allegion

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