Turning Parking Garages into Office Space and Blurring the Line Between Retail and Office
CREtech recently held its annual Los Angeles regional event at the Fashion Theater. CREtech CEO Michael Beckerman opened the event, welcoming attendees to the CREtech community, whose mission is to bring together the commercial real estate and tech communities. As evidence of the growth in commercial real estate tech, he shared that this Los Angeles regional event’s attendance doubled to 300 in September 2018, from last year’s 150.
At the event, cross-industry panels shared lively perspectives on hot topic areas like self-driving cars and flexible workspaces, and also what they see as trends looking forward. The first panel included Jesse Franklin of Macerich, Jake Edens of Colliers, Chris Rising of Rising Realty Partners and Patrick McGrath of Savilis Studley and was moderated by Pierce Neinken of Airbnb. A second panel of Fifth Wall executives, including Natalie Bruss, K.C. Cleary, Brendon Wallace and Brad Greiwe also shared perspectives on what’s next, and why trend forecasting and consulting skills are important to the Fifth Wall value proposition.
Self-Driving Cars Factor into Commercial Real Estate Decisions
Animated conversation centered around the adoption rate of self-driving cars, and the impact on parking garages in commercial real estate. There was debate as to the time horizon: five, ten or fifteen years.
On the one hand, a panelist noted that large tech clients like Google and Uber are still requiring five spaces per thousand square feet for new offices, so “tech companies aren’t expecting self-driving cars to be a big impact for their own employees in the next five years.”On the other hand, he noted that projects are already requiring optionality for space that can be converted from parking garage to office space.
Future of Shared Office Spaces
The leaders in shared office spaces are Regus and WeWork, as seen in the following chart:
Panelists were divided on how much growth remains in the areas of flexible workspace and coworking. One perspective is that there is huge upside, as shared offices represent only a small fraction of total office space and that these spaces better align with demand of Millennial and Gen Z talent.
Concerns were raised about how well many of the flexible office/coworking players (beyond WeWork) will survive an economic downturn. One opinion was that “the music will stop and it will be very ugly for a lot of landlords.”Panelists discussed that #1 player Regus has been through downturns before, perhaps with some strength in occupancy, but that it also filed for bankruptcy in 2003.
While some questioned the business model health of WeWork, panelists generally concurred that the firm has proven that the user experience created in their environments resonates with talent, that it has deep pockets, and is differentiated by tech. An interesting observation was made that the demographics of the users of WeWork vary considerably from Industrious or Spaces.
Flexible Workspace in Malls: Blurring of Boundaries Between Retail and Office
Both panels cited the example of the Industrious (flexible workspace) and Macerich deal placing a flexible workspace leader within a shopping mall environment. (To be sure, both panels had members with financial interests in this). With the first Industrious space in a Macerich mall slated to open in Scottsdale Fashion Square in 2019, there is an expectation of future expansion to other locations. Panelists highlighted the potential cross-pollination between retail stores, restaurants and coworking space occupants.
Another retail trend noted was that digitally-native brands like Bonobos and Warby Parker are now opening retail spaces in locations where they already know their customers are concentrated and are actually driving traffic into malls, instead of relying on large department store anchor tenants to bring in customers.
What About AI and Smart Cities?
While there were many mentions of AI, there was not much conversation in the panels around the four emerging technologies cited by MIT that are impacting CREtech. Those are:
- Artificial Intelligence
- Smart Cities
- Neural Networks
- Zero-Knowledge Proof
We certainly expect more future discussion of applications of these technologies to CREtech.
It was stimulating to hear the different perspectives on commercial real estate and tech industry trends at CREtech. From office buildings to malls, commercial real estate is facing a dramatically changing future landscape. Today, more than ever before, those in real estate need to stay informed and adapt to the market.