New research from JLL adds to the voices in local NAIOP chapters – from Hawaii to Massachusetts – about the profound impact the Millennial generation is having on the built environment. This generation, between the ages of 18 and 34, are changing the way we work and shop.
Our research indicates that the office, retail and restaurant sectors are the most visible examples of Millennials’ influence on the built environment:
OFFICE: Access to Amenities Drives Tenant Improvement Uptick
By 2020, the U.S. workforce will be comprised of 50 percent Millennials, more than all other generations combined, according to JLL research. JLL’s latest report on U.S. non-residential construction activity indicates tenant improvement (TI) – or the renovation of existing space – has been a bright spot in the construction industry. In fact, there has been a 14.2 percent rise in TI projects since the second quarter of 2013. TI packages offered by landlords are growing in most key markets, as they compete for tenants in tightening markets.
For office building owners, the average TI package nationwide is approximately $30-$50 per square foot in Central Business Districts. These packages have become especially important as tenants look to customize office space to attract and retain Millennials, who favor accessibility to public transport and amenities. Companies are renovating space in older buildings; as evidenced by the decline of office space vacancies—they’re down 10.2 percent since Q2 2011. Because of this demand for renovated space, tenants are increasingly looking to landlords to provide high-value TI packages as a part of the lease.
Tenant improvements can support innovation in the office market as companies fill in vacant space. According to a Deloitte survey, 78 percent of Millennials are strongly influenced by how innovative a company is when making a career decision. This customization includes new public areas, more access to technology in meeting and collaboration rooms and open, mobile workspaces. Firms without these new finishes may find it more difficult to attract and retain younger talent.
RETAIL: Instant Gratification Drives Store – and Warehouse – Construction
Office isn’t the only sector undergoing a makeover to better meet Millennials’ needs. New omnichannel strategies emphasize convenience for customers by leveraging retailers’ brick-and-mortar stores as e-commerce pick-up/return depots, which in turn requires a revamped store configuration. Further up the supply chain, industrial occupiers need custom e-commerce space that includes higher shelving, specialized lighting and new pick-and-sort technology to streamline distribution and delivery.
RESTAURANTS: Build-outs that Give Customers what they Crave
Quick service restaurant (QSR) chains are investing in new, creative interior build-outs to better compete with fast casual concepts. Consumers, especially Millennials, are concerned with fresh ingredients, atmosphere and a degree of control over what they eat. According to JLL research, Millennials account for approximately 23 percent of annual restaurant spending, or about 46 billion visits annually; thus, QSR’s should think more strategically about making creative renovations to cater to that audience, as well as expanding their business to markets that are not yet saturated by QSR restaurants.
But how much is this going to cost?
While TI has become a popular way for companies to attract and retain Millennial employees and customers alike, my colleague, Jim Dobleske, JLL Project and Development Services Global Board Chair, offers a word of caution when it comes to capital planning. JLL research reveals that on average Forbes 1000 companies miss their capital plan targets for office real estate along by an estimated $12.2 billion annually. Of that total, 28 percent was overspent. Jim notes that it’s integral when undergoing TI that companies align the available capital with the firms overall strategy and objectives. Some of the worst performers overspend by as much as 20 percent, eating into opportunities for growth. As space changes to meet the needs, wants and demands of the Millennial workforce, smart capital planning and construction management can make the difference between success and failure.