Cohorts Impact CRE

May 1, 2024

With the advent of AI and new data crunching techniques, analysts are increasing their focus on demographic data and sociological cohort analysis to better predict supply and demand dynamics in commercial real estate.

Formative Societal Experiences (FSE)

Why do age-related supply/demand preferences differ so widely and matter so much? The answer, say researchers, lies in the formative influences on learned behavioral variants. That is, in the mix of the formative societal experiences (FSE) to which each generational cohort has been exposed.

In historical terms, the past five or six generations have been exposed to an accelerating pace of change that is truly breathtaking. While Baby Boomers grew up during the Cold War which brought the Korean War and Vietnam conscription, Gen Z (for whom the internet and mobile devices have been present from birth), have been influenced by events such as the 9-11 aftermath, the 2008 GFC, and the widening repercussions of the Arab Spring of 2011. In addition, both generations now confront the constant shifting of societal paradigms relating to home ownership, work/life balance, consumerism, volatile geo-politics, diversity, and climate change, among others.

Because these FSEs define the peer group response, real estate researchers regard them as increasingly relevant in predicting how they translate into real estate needs for each generation.

Using Cohorts to Study Behavioral Patterns

Cohorts are a convenient way to study behavioral patterns among similar-aged groups. Cohorts tend to develop and share common views. In basic sociological terms, it’s the tribal effect from which individual lifestyle preferences turn into a powerful driver of collective trends.

This influence is nowhere felt as strongly as in US commercial real estate. It goes without saying that investors, owners, developers and lenders must stay abreast of trends to accurately meet shifting demands with exactly the right level of supply.

Gen Z and Baby Boomers, widely-spaced at either end of the age spectrum, provide us with several examples. Our Capright “Winds of Change” podcasts explore these in more detail.

Retail Use

Baby Boomers now retired, like nothing better than to browse physical retail spaces particularly discount outlets where they have ample time to enjoy treasure-hunting. In contrast, Gen Z grew up with online shopping. They are more lured out by ‘experiential’ shopping which typically includes a meet-up with friends and entertainment add-ons such as bars, restaurants, movies, and live shows.

Work Trends

Work-from-home is another trend that fits well with the Gen Z lifestyle, whereas the Baby Boomer has typically spent his or her working life at a physical workplace.

Self-Storage Use

In contrast, self-storage enjoys equally consistent demand from both generations, albeit from a slightly different needs matrix. The more mobile Gen Z needs storage space to cope with a more limited living space. A Baby Boomer’s self-storage needs result from a lifetime’s accumulation of consumption and for storing luxury items like boats, RV’s and occasional-use vehicles.

Today’s accelerated pace of societal change will continue to generate important distinctions from one cohort to another. Clear sociological distinctions underpin the greater economy and ultimately determine demand for different types of CRE.