Not a single form of real estate is exempt from the exponential expansion of technology. In an age of digital maturity, interviewees see tech as providing new business tools and environments, opening new business paths, and cycling forward as a source of user demand in an era when more traditional industries may be sluggish. Technology, disruptive and incremental, is pushing change in space use, locations, and demand levels at an accelerated pace.
It is now the norm to anticipate, strategize, and respond to new technologies before they are mainstream. Investors use the presence of tech firms and science, technology, engineering, and math workers in a metro area as a screen for acquisition strategies. As we go through a period when financial firms no longer drive office demand, brokers are concentrating on the technology and media industries as a key source of leasing.
Retailers look to the internet both as a source of competition and as a way to drive consumers into stores. Warehousing looks different in a world where inventory control reduces store sizes, but demand for same-day fulfillment makes “the last mile” in the supplier-to-consumer chain all the more critical. And so it goes. As a major Manhattan developer put it, “Demand for office facilities in NYC is strong.
The finance sector may be down, but technology and media companies are filling the gap nicely.” In consonance with millennial preferences, the tech sector, which was once mostly suburban—Westchester and Dutchess counties in New York; Route 128 in Boston; Silicon Valley; Redmond, Washington; the cadre of firms in Raleigh-Durham’s Research Triangle Park—is now more urban. Think of the impact that tech companies are having in Manhattan and Chicago, as well as in the Bay Area. One pension fund fiduciary believes that “downsizing of office and retail will continue as technology enhances workability, shopping, and overall living.” Still, some think it inadvisable to assume we know the end results of current changes.
In the words of one insurance company executive, “We observe the impact of technology on all sectors, but we don’t know how much space will be needed over time for office, warehouse, [and] retail. The consequences probably won’t be as dramatic as some might fear.” The rise of the sharing economy, finding success with the millennial generation, which is very comfortable sharing rather than owning, is already having a disruptive effect on the taxi and hotel industries.
The office property type, particularly the segment serving smaller tenants, could be turned upside down by the advent of landlords offering collaborative and shared-office locations, as well as lessees renting out unused conference rooms by the hour or a day of office space. This, in fact, is already a fairly familiar business model both in office incubators and in the business suites business. The question is, “Will this go viral?” Tenants have the ability to adjust their space to meet their current economic needs. For example, if a firm is in product development and has 15 employees, it might need 2,500 to 3,000 square feet of office space; then, when the product is ready for market, they are using ten marketing employees who are in the office only part-time.
Their space needs decline to 1,000 to 1,500 square feet. No need to sign a lease locking you into 3,000 square feet—the firm can adjust its needs based on what it needs. In addition, the firm has the freedom to offer its excess space to another firm. This type of leasing model could have a significant impact on how smaller office spaces are leased.
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