The Shared Economy: a buzz-phrase which has caught wind over the past five years. Something inherently humanistic that is now being commercialized. Thanks to technology, it’s now integrated into pretty much every industry. Uber made taxi drivers angry, Airbnb caused hoteliers and chains to switch things up, Etsy made conscious consumerism possible. What about commercial real estate? That’s what was explored at the most recent Cornell Real Estate Council Philadelphia luncheon. The panel, entitled “Disruption & Creativity in CRE,” featured speakers who have their finger on the pulse of change. Moderator Andrew Benioff was joined by Ofo Ezeugwu, CEO & Co-Founder of landlord review and rating site WhoseYourLandlord, Jim Lee, Founder of StratFi, and Anita Shannon, Director of Community at WeWork.
Out with the Old, In with Social
Similar to how Airbnb allows movers to experience unfamiliar neighborhoods through its extended-stay, live like a local platform, WhoseYourLandlord gives tenants a taste of what their living situation will be like before having to sign a 12 month lease. But it’s more than a website – it’s a community. “It’s important for us to have that humanistic element to our brand,” notes CEO Ofo Ezeugwu. The platform serves as a form of information sharing on the good, bad and ugly of multifamily properties. A threat to landlords looking to dodge accountability.
Jim Lee, Futurist and Founder of Wilmington-based wealth management firm StratFi, warns us of the reality that companies have a much smaller life expectancy today. While it was once a 50 year life span, today companies and start ups are breathing on average for only 12 years. Clearly, this impacts both the multifamily and office sectors, as it creates uncertainty, making it harder for tenants to commit on leases. “While we’ve seen more interest in shared community spaces which are smaller in nature,” Jim Lee notes that the future will bring a greater “need for both economic and geographic flexibility.” While zoning kept multifamily, retail, community and work space separate in the early 20th Century, these sectors are now integrating.
The Mesh of Many Sectors
“Co-working space should be seen as a fusion of social reactors for an explosion of new ideas……with an added economics benefit.”
This is where WeWork jumps in. Anita Shannon notes that the model WeWork provides its members is appealing because of the cost flexibility, the all-inclusive aspect, and the idea of community. Anita comments that it makes it extremely easy to recruit new talent in collaborative environments. With a mix of entrepreneurs and freelancers of different generations and companies of varying sizes, she’s far from wrong. “Space is no longer just a physical entity, it should be viewed as a service,” notes Anita.
When it comes to people who don’t “get” the success of WeWork because the company doesn’t own its own space? Andrew Benioff, Chairman & Founder of CREC Philadelphia, has one thing to say:
“The ‘for free’ model makes it so you can profit without owning any space. Think about Marriott International. Marriott doesn’t own any of its hotels, yet its the biggest hotel chain by far in the world.”
Ofo often works from co-working space Alley, a WeWork competitor, and he points out that these collaborative spaces aren’t just for small start ups. They’re for the big dogs, too. In the Alley location Ofo works out of, Verizon has taken up an entire floor. What’s even more interesting is that Verizon is actually bringing Alley into its stores to help transform it into a co-working space.
So, where is there opportunity for profit? All over, apparently. While WeWork once focused mostly on tech communities, the company is open to any city now and has plans to open a new location in Charlotte. Ofo agrees with that sentiment, noting Seattle, Austin, and smaller college markets are important for WYL to look at. He calls them the Millennial Markets. This, of course, is unsurprising seeing as those cities are currently going through construction booms.
The Futurist on the panel calls this the Renaissance for urban environments. According to Jim Lee, each market has a different draw: while Wilmington is more FinTech, Philly is Eds & Meds.
Dying Malls and Retail: Adapt, Adapt, Adapt
It’s no secret that retail is undergoing a transformation. Although none of the speakers work directly in the retail space, they sure are in tune with current trends. In March of this year, a Business Insider article noted that 334 malls across America are rated at high risk of closing.
Here are just a few of major planned store closures for 2017:
- J.C Penney: 138 stores by end of the summer
- Sears / Kmart: 150 stores
- Macy’s: 68 stores
The retail space is a mess, and company consolidation is already underway. Just a day after the CREC meeting, it was announced that Amazon would buy struggling Whole Foods in a $13.7 billion deal. In April, Retail giant Wal-Mart purchased men’s clothing startup Bonobos Inc. for about $300 million.
So, what do we do? The three panelists pointed out three main points: re-purposing space, innovation, and bargain hunting. According to Jim Lee, the first shopping mall, which opened in 1828 in Rhode Island, now holds 48 micro-loft apartments where 48 boutiques once lived. Other malls have transformed into high schools, arcades, churches, and gyms. However, Jim Lee points out that many suburban malls are also prefect square footage and in prime locations for what could be Amazon warehouses.
Anita Shannon mentioned Bulletin, which is described as the “WeWork for retail.” Bulletin is a new company with physical stores that rents out sections or even just shelf-space too retailers who can’t afford to commit to long-terms leases and high rents. It’s certainly a way of commercializing the flea market model. Bargain hunting – that’s it! Ofo Ezeugwu pointed out that the retailers that are still kicking strong offer just that. Think: Ross, T.J Maxx and even Five Below which reported a net income of $8.4 million for Q1 2017.
Maybe if malls incorporate a social aspect (apartments and co-work space, anyone?) they won’t be faced with such an uncertain future. It’s the age of the sharing economy and every sector needs to adapt in order to stay afloat.