Once those people leave college, they’ll need a place to live. “I think the rental market should be a very strong one,” says Louis Pol, dean and professor of marketing at The University of Nebraska–Omaha whose research includes demographic applications, research methodology, and statistics. “I think the demand should be pretty substantial [considering] the qualities and characteristics of Gen Y—single people not interested in the responsibility of owning homes [but who] have to live somewhere.”
Even if they wanted to own homes, many Gen Yers probably couldn’t right now. With the credit meltdown, first-time buyers have a much tougher time getting the 100 percent financing that they could a few years ago. At BRE, COO Lange sees the result of this greater difficulty in buying a home in the company’s renewal rates. He says that over the past year, the length of stay in BRE’s properties has moved up from 18 months to 20 months. “A lot of that may be because the homeownership option isn’t as attractive as it was a few years ago,” Lange says. “They’re hunkering down. A longer average length of stay is good for the bottom line.”
The industry seems in agreement: Echo boomers are en route to apartments. But are apartment owners enjoying the Gen Y boom yet? In some respects, it may depend on what type of product they offer. For companies with an older portfolio that tends to be more affordable to people fresh out of college, there are 4.2 million people entering the prime rental age of 22 and walking through the front door this year. “It is the bulk of the rental pool,” says Jeff Adler, executive vice president and chief property operations officer for the industry’s largest apartment owner, AIMCO, a Denver-based REIT whose 197,158-unit portfolio makes it the largest apartment owner in the country. “You can’t ignore it. They’re in their prime.”
But for luxury operators, things are different. “They’re kind of on the leading edge, [but] they’re not the predominant renter target,” says Christopher Payne, vice president of development for AvalonBay Communities, a REIT based in Alexandria, Va., that owns 48,158 units nationwide.
Despite this, observers say luxury rentals will ultimately benefit from Gen Y’s purported $200 billion in buying power. “Over a longer period of time, demand will be there and be pretty strong,” Pol of the University of Nebraska says. “The youngest of the millennials are still only 10 years old.”
MYTH #2
The economy can’t stop Gen Y.
For an industry eager to benefit from the first wave of Gen Y renters, there’s just one problem. The economy seems to be keeping them out of apartments—at least temporarily. The U.S. Bureau of Labor Statistics (BLS) reports that there were about 760,000 fewer employed persons between the ages of 16 and 29 in January 2008, versus January 2007. In 2006, the under-30 unemployment rate was also fairly high, according to the BLS. For 20- to 24-year-olds, it was 8.2 percent; for 25- to 29-year-olds, it was 5.1 percent. In 2007, the unemployment rate for each group roughly maintained its prior-year level.
“There is definitely some evidence that fewer job opportunities are out there for young adults,” says Ron Witten, president of Dallas-based Witten Advisors, an apartment market advisory firm. “In a down economy, young adults and recent hires tend to be more affected by recession in terms of losing their jobs.”
Wang says many of her friends, particularly those who work in the financial sector, are concerned about their jobs. “We’re all feeling really scared,” she says. I don’t think I have a single friend who isn’t feeling that their job is at risk right now.”
