Going Green, Retail and Technology - Class 3

Green for Green

Is going green a recent trend or long standing smart business practice? Real estate owners and managers can find benefits of going green in three distinct ways: reduced operating expenses, increased rental rates, and increased values.

A property manager’s duty is to assure a real estate property is running smoothly and efficiently since they are concerned with the bottom line. There are typically two types of costs when it comes to operating a building: fixed and variable. Managers have the most control over the latter in several ways with the most notable being reducing energy consumption. The green trend should not be a kick off for managers to campaign for energy reduction. Any good manager should have been doing this long before the word “green” became fashionable.

It’s no surprise that Energy Star rated buildings sell at a higher per square foot rate than non-Energy Star rated buildings. This is evident in the simple IRV valuation formula where Value equals the building’s net operating Income (NOI) divided by a capitalization Rate. Simple math says an increase in NOI leads to an increase in value. And how can you increase NOI? Assuming rents are stable, a manager should strive to reduce the operating expenses it can control; largely electricity usage and water consumption.

Managers have a multitude of options when it comes to a reduction in usage. No longer do bathroom lights need to be left on 24 hours a day. The installation of motion sensors can light up the stalls only when they are in use. A lighting retrofit can decrease usage by utilizing more efficient bulbs. Reverting from night cleaning to day cleaning can allow the janitorial staff to utilize lights when they are already on. Low flow toilets can be installed relatively inexpensively. Rain stations tied to the irrigation system can transmit information regarding the current soil moisture and dictate how much irrigation is actually needed.

The overall reduction in operating expenses will also look attractive to prospective tenant’s thus increasing demand for this product type leading to increased rents. These cost saving measures have been around awhile but are now being branded as “green” rather than good business. I don’t mean that in a negative way. It simply means that being green is good business.

Retail Trends

Effect of Technology

Technology is a greater trend that affects all aspects of real estate but it may affect the retail market more than any other. As more consumers shop online, will we even need to visit brick-and-mortar stores? One might think that online shopping, with the ability to comparison shop, shop in your boxers, and the ease of each transaction, will kill the retail sector. However, I think this is untrue for most products. Books, movies, CD’s and video games seem the most likely candidates to lose out to technology. Just recently Boarders Bookstore and Blockbuster filed bankruptcy with Amazon and Netflix being the online death dealing equivalents.

Other consumer goods are faring better and an online presence helps retailers educate the consumer about their products. E-commerce should be seen as an aid to most retailers since it is an extension of their brand rather than a replacement. Additionally, the key aspect of brick-and-mortar is the ability to touch, prod, test, squeeze, and sniff a product. The ability to feel the cotton shirt, touch the grain of the furniture, or smell the scented candle are all lost with online shopping. Online shoppers also lose out on in-person expertise and are forced to do product research themselves thus spending more time on a computer.

Big Box to Small Box

Large retailers are slowly shifting away from the big box mentality partly as a way to inject themselves into downtown markets. Wal-Mart, the king of big box, has announced plans for smaller, urban stores focusing on fresh food. These stores would have footprints of roughly 15,000 square feet; a departure from their 195,000 square feet super centers. The retailer already has a smaller brand, Neighborhood Market, which average’s e 42,000 square feet. Granted these foot prints are smaller than their Super Center’s but they are still fairly large when compared to other retail stores.


Not to be left behind, Target has also announced a downsizing of its traditional footprint of 125,000 square feet. Target is in the planning stages for smaller stores ranging from 60,000 to 100,000 square feet.

I still wonder if these Super Centers are changing strategy to enter a downtown market it otherwise wouldn’t be able to or if it is realizing its model is no longer viable. I wonder if consumers are becoming wary of the big-box one size fits all mentality and its impact on local economies. As more communities reject Wal-Mart, Wal-Mart is simply responding by rebranding itself as a local “market”, which it is anything but. Wal-Mart still retains its predator habits by poaching on local businesses. It still remains to be seen if this shift will be beneficial to both the retailer and consumer.

Technology Trends

The advancement of the internet is a sure benefit to consumers. The wealth of information now available for market research, open discussion, property searching capabilities, and social networking allows consumers to be more connected than ever before. However, this influx of information may come at a price.

Typically home buyers referred to real estate agents for information regarding the housing market and trends in a specific area. Consumers now have the information at their fingertips with sites such as Zillow and Trulia which may lead to information overload. How does a consumer know the information is correct and accurate? Trulia released a report indicating that 21% of information submitted by individual agents was not updated when changes were made to price or when the property sold. In this regard, consumers still may need to depend on professional agents to stay current on market conditions. That’s not to say the consumers don’t benefit from the amount of information available but should be wary when depending on it as a sole source.

There are great benefits of the app trend for the consumer. Both Zillow and Trulia have created an iPhone application that allows a user to view real estate listings in real time. This gives the user the ability to quickly price a market and search available homes. As mentioned previously, this information should be taken with a grain of salt, however, and used as a market barometer rather than cold hard facts.

Education and Office Trends Affecting Real Estate - Class 2

Education institutions are themselves reacting to the changes in technology as well as changes in consumer habits which have had a positive and negative impact on real estate. Things such as online classes and charter school are challenging the traditional idea of a school. In most classes, students no longer need to be physically present in a class room thanks to online schooling. However, how does this change affect real estate and the education students are receiving? Does online schooling share the same prestige of attending class?

As more colleges adapt to the online world, it allows students to ‘attend’ class in the comfort of their own home. Social networking allows students to communicate about class and assignments and even be assigned homework from professors. As more freedom is granted to students, the need for large college campuses comes into question. Most colleges are treading lightly since there are perceived negative aspects to online schooling.

Many will argue that social interaction and human contact will be the most affected. There is something about being in a room of 30 of your peers discussing a subject that you would not get by just reading lecture notes in your robe at home. Human interaction creates deeper thought and debate you otherwise would not have. Additionally, online schools have a negative connotation in the workplace. Some recruiters simply toss out resumes with University of Phoenix, the most widely known online school, listed in the education section. This perception will need to greatly change before online schooling has a large presence.

Another change is education is the upswing in charter schools and technical institutes. These organizations are taking a different route all together and getting away from traditional schools and campuses. Charter schools are notorious for leasing office space or converting other buildings, such as grocery stores, into schools. Technical institutes are more prevalent as an office tenant or even owning their own office building.

Changes in unemployment are probably the greatest factor when it comes to real estate. Real estate is almost completely driven by employment. Any significant change in the unemployment rate affects the demand for office space as well as consumer spending which will impact the retail sector. One impact from the recent recession is that employers have adjusted to smaller spaces and fewer employees. They essentially trimmed the fat and for, the most part, kept it off.

Another change in the office environment is the impact of telecommuting. Employees are spending less time in the office and more time in their car or home. This change decreases the need for large office spaces. A new emerging trend is the advent of pay-as-you-go office rental; mentioned in my previous post as well. Basically, employees or small business owners on a low budget can rent a shared office for any desired amount of time such as a month, a week or even a few hours. They are also allowed access to such amenities as a conference room or break room. They are similar to executive suites but allow for shorter rentals.

These changes are affecting the design of office buildings as well. Companies are getting away from the large executive corner offices which are seen as a waste of space and resources such as rent. Many companies are moving to office cubicles and an open office environment with no walls or partitions. Employers are also installing plug in stations for their traveling employees who only require a few hours in the office a week

It’s evident again the real estate environment is changing and reacting based on actions of other industries.

Real Estate Reacts to Other Industries - Class 1

Real estate is a forever changing landscape and one that changes for a myriad of reasons. Changes in technology, financial instruments, shifts in consumer demand, and even consumer body size have all had an impact. However, innovations in the automobile and computer industry have possibly had the greatest affect.

No longer are people confined to urban cities and central business districts. When Henry Ford created the first affordable automobile, the model T, he was certainly not thinking about its impacts on real estate. Generally, populations in the late 1800’s were founded where trains intersected thus creating booming cities. With the advent of the automobile, people were now mobile.


Granted they were still not mobile outside of a small radius of the city but things greatly changed with the Federal Aid Highway Act (FAHA) of 1956. The FAHA authorized $25 billion for the construction of 41,000 miles of interstate highway system.

During the completion of this immense track of highway, many types of new real estate ventures began popping up in the 1950’s as consumer mobility and demand shifted. As people began driving across the country, they needed places to eat, sleep and shop. And as any good entrepreneur, real estate trendsetters were there. Filling stations, motels, and fast food were the most prominent endeavors created for this need. It seemed as if overnight this new real estate model popped up.


The FAHA also led to the suburban boom and the flight of residents out of the city. This created the demand for new single family housing as well as retail centers to support this new growth. As this suburban sprawl took shape, home builders built larger homes since there was more land to build on. This rapid development created the great suburban migration, essentially living cities barren. Outside of high rise office buildings, inner city real estate saw a general decline.


However, in an almost ironic fashion, suburban living was seen as cookie cutter in design and lacked any originality. Houses were generally identical, shopping centers housed similar if not the same stores, and the overall experience of suburbia was bland. Over the last decade, there has been a push against suburbia as the Baby Boomers and Echo Boomers seek a more walk-able lifestyle in urban developments.

As demand increased, the real estate industry has slowly shifted towards live-work-play environments which are increasingly being created near transit stations. Consumers are now looking for convenience rather than space. They are giving up the 3,000 square foot houses for the 1,500 square foot townhomes and condo’s.

Similar to the advent of the automobile, technology has had a great impact on real estate. Items such as the digital camera have made photo processing booths obsolete. Furthermore, online shopping has significantly reduced the need to visit traditional brick-and-mortar stores and has given consumers greater choice in shopping. The internet has also opened up a wealth of information for homebuyers who were once at the mercy of real estate brokers who operated as the gate keepers.

Real estate sites such as Trulia and Zillow give homebuyers detailed and extensive information about markets, trends, pricing, and mortgage options. Real estate brokers are thus changing out they operate and moving towards an online and internet based strategy; utilizing sites like Facebook and Twitter to advertise their listings.

The use of technology and wireless interactions has also caused a change in the office environment. Office workers are no longer strapped to a desk but now have mobile offices in their vehicles. Real estate responded to this demand by creating pay-as-you-go office rental for travelers who only need an office for a week, a few days and even a few hours. As more people travel for work, hoteliers have developed sleep stations that provide only the basic amenities in a relatively small space; thus providing travelers a less expensive option when traveling.


Additionally, as computers get smaller and more people work out of the office, the space required to house employees is shrinking. Offices are seeing more plug-in stations rather than full-fledged offices. The advent of the smartphone as only spurred this growth as people can now conduct business with a handheld device.

In a broad sense it is rather interesting to see how real estate professionals respond to growing trends in other industries, such as the automobile and computer industries. As a result, real estate professionals are both reactionary as well as forward thinkers when it comes to creating new products for consumers.