How Tech And Disruptors Aren’t Necessarily Seizing Developer Profits
One of CRE’s largest developers may not be scared by one of the industry’s biggest disruptors, but that does not mean it is sitting idle in an era of changing tenant expectations.
While sitting on a panel at Bisnow’s technology event in Boston Thursday, Boston Properties Executive Vice President Bryan Koop was asked several times if his company, the most valuable U.S. office REIT, was threatened by the rise of WeWork.
“No,” Koop repeatedly replied.
Building owners and operators have watched a tenant become a competitor in recent years, as the co-working company has broken out as an increasingly viable option for enterprise companies, those with more than 1,000 employees, looking for readily available space.
WeWork counts companies like Amazon and IBM as tenants in its venues across the country and now has a higher valuation than publicly traded Boston Properties. Unbothered, Koop said his company is content.
“Our point of view is we’re pretty maniacally focused on our customer, and our sweet spot has been this long and strong customer: long-term leases, strong credit,” he said. “As we continue to focus on that, there will be changes in how we work with them.”
Koop said his company is not distracted by the disruptor, in which Boston Properties Chairman Mortimer Zuckerman was an early investor. But it is changing to meet customer needs, something his fellow panelists agree with.
“The shift we’re seeing is [companies like Boston Properties] are rapidly entering spaces that used to be seen as tenant problems,” WiredScore CEO Arie Barendrecht said. “They used to just provide a space, and now, it’s increasingly about digital infrastructure.”
Boston’s surging real estate cycle is driven by tech, both by traditional technology tenants like Rapid7 as well as companies with an increased digital presence like General Electric. With every company increasingly thinking of themselves as a tech company, plug-and-play connectivity and less lag time between lease signing and move-in are rising expectations, forcing landlords to take a more active role in their tenant experience.
“Landlords are willing to go into tenant problems and work with them and create a space,” Barendrecht said. “In my world, internet connectivity is obvious.”
Tech is impacting buildings' lowest levels just as much as its highest. Parking design is poised to make a seismic shift in coming years, as developers look to tackle the historically inefficient building model to cut costs and maximize space.
“As developers, we’re always thinking, ‘how do I reduce cost? How do I make my space more efficient?” CityLift Parking President Andrew Ginsburg said. “If I can shrink the space by half, and if I can reduce the cost by half, we’ve added real value to ourselves and to other people.”
Parking is not only expensive, but it is widely seen as taking up an excessive amount of space. Seaport developers are faced with six-figure costs per space, as waterproofing and subterranean digging accompany most parking projects, according to Ginsburg. Typical parking garages require as much as three to six times as much space as each car’s dimensions, and developers look to technology to trim parking costs with solutions like automated parking.
CityLift is primarily a third-party provider of automated parking technology systems, and it has a development division to build around its technology. The embrace comes in handy at a time when Uber and automated cars leave many wondering how much parking is needed at developments.
While Ginsburg said he does not expect cars to go away, the way people use them might. Fewer cars mean less of a need for parking, but repositioning garages is difficult. The low ceilings of traditional parking garages make it hard to future-proof for later repositioning into habitable space.
His company uses machines and automation to build parking lifts for voluminous spaces as opposed to garages with low clearance. The company developed a system that can dismantle the lift in the higher-ceilinged spaces that can be repurposed into things like housing.
“There are two ways to approach that,” Ginsburg said. “How do we impact buildings today, and what does the future look like tomorrow?”