The Dichotomy of Millennial Housing

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“Millennials are moving to the extremes when it comes to multifamily housing preferences, and developers should begin to take note,” Gary Bechtel, president of tech-enabled commercial real estate lender Money360, tells GlobeSt.com. Bechtel has seen shifting housing demand in the market among millennial and gen-Z renters, with shared co-living spaces rising in demand on one end of the spectrum and luxury apartment living on the other. These changes in housing demand should be informing investment strategy in the multifamily sector.

“Over just the past couple of years, millennial demand created a new multifamily asset class called co-living spaces, which function more like dorm living than apartment living where an individual rents his or her own private bedroom but shares common spaces like the kitchen and living room with other renters,” says Bechtel.

Shared co-living spaces are relatively new to the market, but several operators have sprung up quickly to bring new assets to the market. These spaces are largely an effect of the rising cost of rent. However, they work for younger millennials and gen-Z renters that don’t mind shared living and want an operator to take care of essentials. For investors, however, these spaces come with more intense property management requirements. “The benefit of this living style for developers and investors is the ability to create more revenue producing rooms, out of similar fixed square footage,” says Bechtel. “However, there are tradeoffs: rents tend to be less and these properties often require more active building maintenance for the shared spaces.”

Millennials are also driving demand for high-end and tech-infused living spaces that come with onsite amenities. “On the other end of the spectrum, millennials, especially those that are established in their careers, have shown greater appetite for luxury buildings than generations before them,” says Bechtel. “No longer do fitness centers and pools constitute upgraded amenities; millennials are demanding high tech offerings like keyless entry and uninterrupted high-speed wi-fi, and hotel-style services like concierges and tenant programming.”

These properties attract renters, but at a high cost of rent. During a downturn, these properties could see higher occupancy rates. “Luxury buildings demand luxury lease rates and attract a more established clientele base,” says Bechtel. “However, developers and investors should take steps now to protect themselves against a potential economic downturn, which typically affects upper-end real estate more and earlier than more affordable properties.”