Emerging industry trends are coming from the future
Trends are not easy to predict in any industry. To understand industry trends, you must first understand who influences trends and why trends change. Is it simply fashionable? Has a new technology usurped an existing popular system? Maybe a rising ethos toppled an old stereotype? Looking at existing trends to identify what will be popular in the future seems oxymoronic, but it can be a useful exercise to identify who and what will influence the trends of tomorrow.
The real estate industry is hesitant to identify and incorporate trends. This can be a result of comfortable inertia — Why change if you do not have to? Or practicality — Who can afford to follow every fad, and who has the time/space to?
Emerging trends in real estate are more predictable and actionable if you view them through the lens of expectations of future users, rather than simply as an inventory of available amenities and services. Adopting existing technology in creative ways to improve margin in low-cost real estate sectors will be the most significant industry trend in the coming years. From how we attract and evaluate renters to how we process evictions, real estate investors will come to rely on these emerging trends in technology to change their business processes. This sub-market segment will drive demand for interoperability and the subsequent ubiquity combined with ease of use will aid adoption in the consumer market.
Prospective renters will also change the trends on what they demand from the property. Remember: this is a generation that grew up with smartphones in their pockets, giving them 24/7 access to the internet through Wi-Fi or over-the-air data. In decades past, renters may have wanted multiple cable TV access, phone jacks in every room, or (God forbid!) ISDN wiring. Some of us can even remember the days of rotary phones, cell phones the size of shoe boxes, and then “high-speed” 2,400 baud dial-up modems.
Within our industry, companies adopt technology slowly for many reasons: a complex, multi-organizational, self-interested and fractured supply chain; stakeholders clinging to outmoded systems, like print documentation that provides safeguards against obsolete compliance requirements; individual interests like self-preservation and job security; or vendors lobbying to impede progress to maintain market share.
As we have seen though in recent months, caused by the COVID-19 pandemic, rapid and jolting changes in trends are possible when a compelling reason exists for involved parties: renters, landlords, investors, lenders, regulators, and even elected officials. Additionally, tragic occurrences have demonstrated how trends can be created by an immediate groundswell caused by the “voice of the people” wanting a say in how our elected officials implement public safety policies.
History Is in the Making
We are in the midst of a sea change. Old trends are disappearing with new ones taking root, with these compelling causes pushing us in the direction of favorable change, which will endure. We are adapting.
Surely, 2020 will be remembered as a “year of change” because of the impact of national and global events. Some will undoubtedly have trouble accepting these new ideas and ways of life as the “new reality.” Others think nothing of it — the simple act of wearing a face mask to prevent the spread of disease is now routine behavior. “Zooming” is now to video calls what “Kleenex” is to tissues or “Google” is to internet searches.
But what about our industry? What can real estate investors and property managers foresee from not just the current upheaval, but also the ongoing trends that began before 2020?
Let’s first look at who will be driving these trends. Just as the Baby Boomers—those born in the post-World War II era between 1946 and 1964—influenced societal and industry changes for decades, the two upcoming generations, Millennials (born in 1981 through 1996) and the subsequent Generation Z (born 1997 through 2012), will play large roles in not just changing trends but in dictating the pace at which those trends change.
Out with the Old and in with the New
You’ve already likely seen their impact: they’ve challenged the “old ways” of thinking, not only of themselves, but of others. And they have increasing economic and electoral power, which will have increasing influence in the real estate sector.
According to Pew Research, Census data in the United States reveals 72.1 million Baby Boomers. Revealed for the first time as of 2019, the number of Millennials, 71.6 million of them, is larger than the Baby Boomer generation. What is more? Generation Z outnumbers them both with a population of 90.6 million, which represents ~25 percent of the population in America.
Of course, with numbers comes influence. Boomers made a lasting mark on our lifestyle, culture and politics, as Millennials are starting to do now. As they age, Millennials are increasingly taking leadership roles in business, government, and public service. While the little-discussed GenX (1965-1981) leads in disposable income, Millennials are coming into their prime earning period.
With the first waves of Generation Z now entering adulthood, their impact on trends will be even larger as they are entering the workforce and have more disposable income than the Boomers did. They stand to be the largest voting block and economic influencer due to their sheer population, more than the previous three generations as well as their digital and social organizational acumen.
Having gained some understanding of the general differences of the trend influencers, let us look at some of the trends our industry can expect from our forthcoming clients. In my opinion, “smart-home” branding as it currently exists is flawed: it is a misnomer that misdirects consumer understanding as non-essential. It appears as a solution in search of a problem.
Multi-market Adoption Will Be Necessary for a Tipping-Point
The tipping point for technology adoption in homes at-large will occur when the casual consumer realizes they can solve a problem (that they perhaps just discovered) with an obvious (and relatively low-tech) solution that they can understand and therefore are comfortable with it (purchase decisions are largely emotional, but rationalized by economics). They will see the solution as easy to adopt and feel confident it will work without requiring them to purchase a monthly subscription service.
An investor in the real estate industry (whether flipping, lending, or holding as a rental) needs the economics to work, and understands value. Interestingly the drivers are inverted: In business, purchase decisions are driven by economics, but rationalized by emotion. As technology costs drop due to mass consumer adoption and reduced manufacturing costs, an opportunity arises to utilize older, less expensive technology in creative and meaningful ways to deliver value to the bottom line for independent housing providers and investors. Technology previously only available for large management companies will become common (and essential) for the small business real estate investor, providing them with greater confidence to improve operations and procedures, reduce risk, and better manage compliance requirements. When value is apparent and obvious, adoption will move from natural to necessary.
Trends Are Shaped by Younger Generations
While Millennials have been mischaracterized as a generation without direction, they are passionate about correcting injustices, and their influence will largely shape the trends impacting real estate in the future. Being raised in the digital era, they have an ethos for immediate gratification with intuitive sense of how technology can be used as a solution to pre-existing problems, Generation Z can overcome the inertia of long-standing problems due to complacency and apathy of bureaucracy. The size and economic impact of these two generations will influence the trends in the real estate market—from a shared economy to gig employment—for decades to come.
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