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.