By Charley Babb
What do Baby Boomers and Millennials have in common? They both like to spend money. While they may spend their money on different items, collectively Boomers and Millennials account for more than $5.5 trillion of annual spending power. This equates to over 30 percent of the annual GDP of the United States. With 150 million people combined, Boomers and Millennials are prompting changes among retailers in order to capture more of these two population segments’ customers and sales. This is true regardless of whether the sales are generated in traditional physical locations or via online retailing.
Not surprising is the fact that Baby Boomers are fueling the healthcare industry. True to our culture of “better living through chemistry,” they are consuming massive quantities of pharmaceuticals. The real estate implications are that drug stores are raking in the sales. These retailers have noted sales growth of greater than 8 percent over the past year. Approximately 57 million Americans will be over the age of 65 by the year 2020. That will account for 16 percent of the total US population. Look for continued long-term growth in the drug store sector of retailers.
A day does not go by without reading an article about the spending habits of the Millennial generation. I know from my own experience (my four kids are all Millennials) that rather than spending as much money on “things” as my generation, Millennials love to allocate a fair share of their disposable income to “experiences.” Much of this is spent in restaurants and bars. As such, these establishments have experienced over 6 percent growth in sales over the past year. Other businesses within the hospitality sector have benefited from this generation’s spending habits as well. Q1 occupancy in US hotels came in at over 60 percent, which is the second highest level on record. A cornucopia of new brands designed to cater to the Millennial traveler have sprung up almost out of nowhere. In addition, Baby Boomers, with plenty of disposable income spent on travel, have the hospitality sector thriving.
While Millennials do enjoy their experiences over things, they are also spending money on furniture and home furnishings. This segment grew at nearly 4 percent over the past 12 months. Millennials are starting new households, albeit typically in apartments, at an expanding rate. Just try to visit your nearest urban center without noticing prolific apartment construction. More than 200,000 new apartment units were delivered nationally during the 12 months ending in March 2016. During the same period, absorption outpaced even this robust addition to the supply, thus reducing the national vacancy rate to 4.2 percent. Affluent Millennials seek live-work-play options in or near central business districts; however, a less reported but significant number of them seek to lease more affordable suburban options. Locations near public transportation, such as light rail stations, have fared particularly well.
So apparently my children and I enjoy spending our money. They may rent and I may own my home, but we all love to enjoy our experiences together. Smart retailers will continue trying to attract that next dollar from each of us and likewise, real estate entrepreneurs are cooking up new real estate deals/projects to attract these tenants. MCA is currently working on several assignments involving mixed-use/destination-oriented /”experience-focused” projects where the anchor tenants are a conglomeration of fantastic restaurant with lines out the door producing staggering sales. The day has come, the paradigm has shifted … traditional grocery and department stores are no longer the only game in town when the goal is attracting throngs of eager Millennials (and likely Boomers too) looking for just the right experience
The author, Charley Babb, is a Principal and Senior Director in the Denver office at Metropolitan Capital Advisors. Charley can be reached at or visit the Metropolitan Capital Advisors website at http://www.metcapital.com