We are a month into 2018 and the prediction articles have slowed down, so I figured I would weigh in. Here are my thoughts about who will win in 2018 in a few key areas within corporate real estate.
Office Space: WeWork has changed the game. The company that is now valued over $20b built a business based on culture and providing space as a service. Recently, a friend told me that after touring the market and meeting with several prominent New York City landlords, he decided to move his headquarters from one WeWork location to another larger one. His new location, over 10,000 sf, is separately demised and fully furnished. He has a one-year lease with options thereafter. He valued the cost certainty that a truly turnkey environment provided, as well as the flexibility that he feels he needs as his company is in a major growth mode. On top of that, he believes he is getting a better product because WeWork is managing the space and provides amenities within the building.
In a nutshell, WeWork is forcing landlords to provide their tenants with better service, better amenities, and a better overall experience. Landlords must understand that today’s tenants are using their space as an employee attraction and retention tool. Those that assist their tenants in delivering a workplace and amenity package that will support that mission will win in 2018.
Multi-Family: Last year, my girlfriend moved from one building in New York City to another a few blocks away. The key deciding factor in her move was amenities. Similar to office buildings, new multi-family buildings are raising the bar on amenities, including enhanced package rooms that support grocery deliveries among others.
Retail: The death of traditional brick and mortar retail has been highly exaggerated and couldn’t be further from the truth. However, how and where we shop continues to evolve as e-commerce plays a larger role in our lives. Smart retailers are using their stores as showrooms and distributions centers to support their e-commerce platform. Take a look at BestBuy’s stock price if you don’t believe me.
Amazon’s purchase of Whole Foods supports the notion that e-commerce can benefit from the support of physical locations. As online giants try to get closer to their customers, they will use brick and mortar retail to support that effort.
Industrial: Speaking of getting close to the customer, was anyone aware of the term “last-mile” five years ago? I wasn’t. Now, it’s a dominant topic of conversation within the industrial space, as being within six to eight miles of the consumer is crucial. Given the density in Manhattan and Northern New Jersey, it’s not going away. Will we start to see multi-story warehouses developed to support the rising demand? It’s not as farfetched as you might think.
Technology: The CRE Tech space is inching towards maturity. We have seen some consolidation, but very few exits. Those that have raised money and can continue to do so will drive innovation and push our industry forward. We are finally seeing direct investments by major landlords into tech companies and VC firms. This will accelerate the pace of adoption, but more importantly, it will help smart landlords provide better service to their tenants.
Location: During this cycle, many thought that being next to a train station was crucial. Unfortunately, there’s not a lot of available space for development adjacent to train stations. The rise of Uber and Lyft and the idea of driverless cars in the near future make being in close proximity almost as appealing as being next to the station.
Overall, those that are willing to take chances, innovate, and move forward will win. Those that continue to do business as they did in 1988, 1998, 2008 or even 2013 will be hard pressed to compete and/or flourish. The winners in 2018 will be those focused on 2023 and beyond.