The coffee was brewed, the stage was set, the speakers prepped, and boy did they deliver to over 1,000 attendees yesterday at our 13th Annual Commercial Real Estate Forecast Conference!
Cushman’s Shawn Mobley kicked off our first event—a one-2—one panel with 1871 CEO, Howard Tullman, by asking what resources were available to startups who chose to be a part of 1871.
“I think when we started it was just an attempt to see if we could bring all the endeavors and elements in the community together,” Tullman told Mobley. “Could we bring the universities, all the companies, and the technology together? That was the first goal, and I think we were quite successful. But after a point, it gets to not be about how much you raised but more important things.”
Tullman noted that 1871 has generated about $40 million worth of fundraising, about 1,400 jobs, and has spun out about 75 companies now.
“So now it’s a factor,” he said. “Now it’s generally about building businesses. It’s all about real results, concrete metrics, and things like that. So that’s been a change this last year where we focus much more on how you’re doing and progressing.”
“We’ve got all of these resources there, and all of these tools available, but you have to come in and make it happen,” Tullman continued. “If you don’t, we actually do tell people that their babies are ugly. It’s not easy conversation, but the good news is that they don’t leave. What they do is mope around, say my idea sucks, but I want to do this with my life, and I’m excited about this.”
Tullman shifted gears, adding that the market is being re-envisioned, and that he thinks we’re headed to a new kind of community.
“I call them wells,” Tullman said. “You’re going to work some place, you’re going to exercise and live there, and you’re going to learn too. We talk to our workforce—and not all of them are 20 years old—they’re all between 25 and 55. This idea of proximity is really significant. The idea is that they want to be in these communities. So they want to be close to where they work, and also want to have all of the other aspects.”
“I think you’re going to discover that they don’t want to own anything period,” he said. “We’re seeing these new micro living facilities where there or 400 square feet is the size of the unit because all of the common areas have been pushed out.”
To show the impact of technology, Tullman pointed out that in New York he’s seeing enhancements in two areas with the new buildings being built.
“Mail rooms are about five times bigger because of e-commerce, and they’re bringing back meeting rooms which sort of went away. Also, it turns out that having Wi-Fi for a building is off the charts because the more connected people are in your building, the more likely they are to stay in their leases.”
Our sizzling State of the Market panel was moderated by Avison Young’s Danny Nitikas, and featured Dave Burden, Colliers International; Alain LeCoque, Colliers International; Michael Drew, Structured Development; Drew Nieman, CBRE; Ryan O’Leary, Duke; and Chris Wood, DTZ.
When asked about his thoughts on the state of the market, O’Leary noted that Chicago has historically gotten into an over building issue during the last cycle.
“Right now we’re delivering 6 ½ million feet of spec product for the system,” he said. “The historical average is almost two times that. So I don’t think we’re in any danger of it yet. We have to keep a close on it. REITs have been very conservative keeping their occupancies up, which is definitely healthy and getting rent growth.”
“I think Chicago will see in 2015 a big benefit from e-commerce,” O’Leary continued. “Coming on the industrial side, technology is changing the workplace, but it’s also changing the industrial landscape as well. Last year e-commerce was 10 percent of our overall national absorption, which doesn’t sound like a lot, but 24 months ago it was 5 percent. So it’s really coming out strong, changing the way that we deliver facilities, and I think Chicago with its changing landscape, will be a big beneficiary of that in the industrial market in 2015 and 2016.”
Michael Drew discussed e-commerce as well, stating that it is a threat to the working order of retail. “There’s winners and losers in that market,” Drew said. “So we’re paying very close attention to lease language, right to re-capture, amongst other things. And in a man bites dog story, the e-commerce companies are now starting to build purpose centers like Amazon and Microsoft. So that’s something we’re keeping close tabs on.”
From 2016 through 2019, Wood noted that DTZ’s tracking about 16 million square feet of tenants in downtown Chicago that are rolling.
“I think about 40 percent of those folks are in the market,” Wood said. “So Drew’s points are really good. Chicago’s pulling the presses, and people are already talking about the next wave of development. I think that Allen’s point about consolidation of footprints is real if you look at who’s announced moves.”
“Tenants tend to move because the way that they use space doesn’t work,” he said. “If it works they can renew because it’s cheaper. But DLA Piper going from 260 to 175, St. Bart going from 300 to 200—every re-location tends to be for less square footage, more efficient, maybe more expensive. That I think is going to keep blowing and going because this corporate America used the recession, both the law and consulting firms—people that are in corporate America—to put the paint hat on and really make the changes they could make in their organizations.”
Although Wood said he thinks the square footage compression will have an impact on leasing, and that he isn’t sure if it will have a tremendous amount of absorption on the tech side of things, he had another big story in mind to share.
“For me the big story, user matching up with capital markets, is going to be are these new rents achievable over the long term? Because I think investor appetites and the frothiness of the market are one thing, supply and demand is another, and I’m not sure they’re going to match up in all places.”
It’s been said that nearly every office building should have a shared suite, co-working space, tech incubator, or tech laboratory of some kind no matter how big or small. True or false? That was a question posed by NGKF’s Geoffrey Kasselman during our Teching of Chicago Panel featuring Chris Epstein, Beco Midwest LLC; Constance Freedman, Secondary Century Ventures; Roger Heerema, Wright Heerema Architects; and Ari Klein, Cushman & Wakefield.
Epstein noted that Beco had been doing that for 20 years, as the company’s a big leader in the tech collaborative situation. “Our buildings are typically not about physical buildings, it’s more about the experiences.”
Klein said he thinks space for collaboration is a must, but would have to answer false.
“I understand the benefit that it has for organic growth of tenants,” he said. “It’s nice to have a floor to incubate startups, and then if they grow, then maybe they take two to 5,000 square feet. And if you’re lucky then they turn into companies like Uber and take 50 to 60,000 square feet. Perhaps it happens in that building, and perhaps it doesn’t. I think it’s different if you’re a million square foot building in the West Loop versus a 45,000 square feet loft in River North.”
According to Freedman, she isn’t sure if there is enough demand to satisfy an incubator space for every building out there, but for shared or co-working space, she would say true.
“I say that because of the trend that by 2020 40 percent of the workforce is estimated to be virtual, and to be a freelancer workspace,” she said. “On the opposite side, 83 of the top 100 companies to work for in Fortune have telecommuting as a benefit that they offer. As a result, on average about 30 percent person’s desk is actually used.”
“So what we see is that demand for convertible space, somewhere an office worker can go to if they don’t actually have an office,” Freedman continued. “But also on the other side, supply, where a company maybe has a large footprint that they’re currently renting but isn’t being used. So I think that having the flexibility for a company or a tenant to offer that same space, or for a landlord to offer some of that unrented space too, this virtual workforce is definitely a trend that people should take on.”
