Technology is reshaping our cities, giving people and businesses more choices and creating entirely new industries. As a result, we may now be less likely to work in a formal office setting than to share space with other businesses in a coworking facility. Rather than a hotel room, our vacation lodgings may be someone’s private home booked through a home-sharing service. Instead of perusing aisles in a big-box store, our groceries may be delivered to our door with a click of a button.
In 2016, coworking company WeWork earned $75 million in revenue by offering shared office space to freelancers, entrepreneurs and start-ups. Two years later, it earned $1.8 billion, and it’s currently considering an initial public offering. Meanwhile, the “Amazon effect,” which broadly describes the retail transformation from brick-and-mortar sellers to e-commerce, is steering two real-estate trends: warehousing space and home pricing. A report from Jefferies Group noted that from 2009 to 2017, Amazon’s rental of warehouse space jumped from nine million square feet to 114 million. Since Amazon’s November 2018 announcement that it would locate its HQ2 corporate offices in northern Virginia, median home prices in the area have jumped by $110,000 – or 17.3 percent.
“Technology companies transform what people do – where they do it and how they do it,” says Eric Boyum, managing director and national leader, Technology & Communications at Aon. “From introducing a new industry to influencing where people live – these tech-driven changes will continue.”
Whether it’s labor trends or shifts in real-estate development, tech’s impact is vast and wide – and the transformation will only continue.
The rise of e-commerce has transformed retail: U.S. online retail sales constituted 5.1 percent of total retail sales in 2007, growing to 14.3 percent – and topping $517 billion – in 2018. In February 2019, the Commerce Department reported that for the first time ever, online sales slightly outperformed than general merchandise stores. The respective categories, however, were each just shy of the $60 billion mark that month.
That transformation has put brick-and-mortar retail spaces under considerable pressure. In 2018 alone, 5,864 U.S. stores closed, with nearly 6,000 more expected to shut their doors this year. In the U.K., close to 2,500 stores disappeared in 2018 – 40 percent more than the year before.
And as stores and malls close and more goods are shipped to our doors, the retail focus has shifted to another type of structure: warehouses.
Online shopping has changed consumer expectations – markedly increasing the range of goods and delivery options. Online retailers’ interest in meeting those expectations has motivated considerable investment in warehouse space as they look to store products nearer customers for speedier delivery. Meanwhile, Amazon has been testing a range of new technology – from drones to a six-wheeled robot called Scout – all with the aim of increasing more efficiencies within their warehouses through to last-mile delivery.
In addition to shifting real estate from traditional retail space to warehouses, tech is also reshaping how – and where – work happens.
Location, Location, Location: Technology and Talent
Coworking spaces – that is, flexible and shared workspaces – are becoming an increasingly popular office option. The market for such space is considerable; the global flexible workspace market is currently valued at approximately $26 billion.
To take one example of this shift in working habits: India, which has more than 5,000 start-ups, is expected to show substantial promise in its flexible workspace market. The flexible space market in the U.S., fueled by venture-capital dollars, is expected to remain strong.
Coworking workspaces could allow those without formal offices – freelancers, small to medium-sized businesses and even multinationals – a cost-effective place to conduct work. Other location trends suggest that organizations are migrating from suburban areas back to cities in an effort to be closer to younger talent who prefer shorter commutes.
On the flipside, as with Amazon’s HQ2 in Arlington County, Virginia, the flood of highly skilled workers to growing tech hubs can put pressure on local real-estate markets. In San Francisco’s Bay Area, home to some of the world’s largest tech companies, the average home value of $1.34 million is pricing people out. Such trends, notes Dave Smith, partner at McLagan, are not uncommon: “While we might think of tech hubs as strong talent pools, many companies are looking at other locations to balance tech needs with skills shortages in specific areas.”
For example, recent location strategy findings released by McLagan found that financial institutions looking for IT roles could consider cities like Pittsburgh – an underrecognized tech hub – to be an optimal location to find necessary skill sets without competing with tech-based companies.
Brooke Green, head of Industry Convergence, Human Capital Solutions at Aon, notes the dichotomy: “In addition to tech companies changing our daily lives, they are shifting not only how we work, but where we work. Companies looking to successfully compete for the talent needed to make strategic shifts to push businesses forward can be both location agnostic – due to remote and coworking office space options – and also very tied to specific markets.” Indeed, companies are going where the talent is, and in the case of Amazon, the real-estate market is following suit.
New Options, New Opportunities
Technology has reshaped our lives and our businesses. It’s expanding choices, creating new opportunities and changing how and where we live and work.
“Technology continues to improve upon itself and how it impacts the end consumer,” Boyum adds. Whether ordering online or viewing personalized recommendations of what to buy, the consumer adoption of e-commerce has led to broader shifts impacting entire supply chains and broader economic trends as evidenced by real estate.
“It’s an exciting time,” Boyum continues, “our interactions with our digital carts are broadly changing our society. And it will only continue.”