Runway Incubator | The Innovation Blog

Startups and the Opportunities in Commercial Real Estate

Posted by Joe Vasquez on Feb 23, 2016 3:26:47 PM

I was meeting with a friend of mine recently and our conversation turned to the commercial real estate market, something I know next to nothing about. He’s been in the field for several decades and has been thinking about long term trends lately. He was very curious to know more about some of the trends in the early stage startup ecosystem and how they might affect his world.

I was a bit surprised because I hadn’t taken much time to think about the correlation. But there are some natural consequences of what we see happening in the tech world and the CRE market. Some of them are obvious. Amazon has been eating away at the brick and mortar retail market for some time now. Big box expansion and dominance was the major trend at the end of the last century, and the economies of scale and buying power that these big box retailers brought to the market crushed much of the local, organic competition. Jump forward 10-15 years, it’s the same economic principles that are helping online retailers like Amazon drive big box stores out of business. But what other sectors are being affected by the trend of online businesses encroaching the “real world?”

Uber and Airbnb are two obvious examples. But there are many others. The obsession with improving delivery times in last mile logistics will eventually (sooner rather than later) eat away at the convenience store market. Today, there are still many items that consumers want to “try” before they buy, but there are many technologies and business models (check out Runway’s own Try.com) that are breaking down these strongholds. In the future, I believe physical retail locations will be focused on two functions: 1) a showroom for customers, and 2) a local distribution hub. All of which means a smaller footprint for retailers. The same winds of change are being felt in the office space world. Many of today’s workers are demanding more flexibility when it comes to where they work, and this includes flexible work spaces and working from home. All of which means that the one desk per staff member model will face increasing scrutiny in the next decade.

My friend’s view was that because of these trends, the long term prognosis of the CRE market is not good. He estimated that vacancy rates could rise up to 30% in the next 15 years in most major metropolitan areas. I find this a bit hard to fathom given the bubble we find ourselves in in San Francisco. But I have a hard time arguing with the effect that the modern world is having on the way that we live.

I like thinking about these types of long term trends. No one knows where the future is headed for sure, and you should never believe anyone who pretends to. But as people working in the early stage tech sector, we need to think about these kinds of things, plan for them and invent solutions before the rest of the world is aware they have a problem. It’s necessary, and it’s what makes the job fun.

Joe Vasquez

Written by Joe Vasquez

Joe has a passion for helping entrepreneurs and corporations to innovate. He was an early co-founder of StartX, an accelerator for Stanford entrepreneurs. Prior to joining Runway, Joe taught at the Kauffman Fellows Academy and was a Data Analyst Fellow at LocoMotive Labs. Joe started his career in investment banking at Goldman Sachs and spent two years teaching bilingual math with Teach For America. Joe holds a BS in Atmosphere & Energy Engineering from Stanford University.

Topics: Business, Startups