The most fascinating aspect of a commercial lease deal, in my mind, is that there is very rarely a situation when the tenant and the landlord’s interests are truly aligned. The tenant’s main goals are to minimize rent, maximize cash concessions from the landlord, and create flexibility through renewal, expansion and termination options. Conversely, landlords want to maximize rent, limit transactions costs, and maintain control over their space so they can adapt to hopefully improving market conditions. This is an obvious misalignment of interests in one of the most fundamental business relationships in our economy. I fear that the current shifts in the economy, and society in general, are only going to widen the gap between landlord and tenant interests.
As one senior leader in my company told me recently, we need “butts in seats” in order for the brokerage industry to survive as a thriving service. That means job growth. Uhh, where is it going to come from? Who knows? But here are a few reasons why I think it is going to be even more difficult to get butts in seats going forward:
1) The Internet – If it weren’t for the occasional instances when you actually need to talk to a human to do your job, how often would you go to the office? While it is difficult to imagine a business without face to face interaction, tools like interactive CRM, cloud enabled project management and document sharing tools, and live video chat are diminishing the need for conference rooms, data centers and even offices. How many sales people actually sit in an office all day? How many clients actually have the time to hold conference calls and in person meetings in order to take action on a project? I am at my peak productivity when I am mobile, and utilizing software tools that minimize my in person interactions. As the baby boomers move from the corner office to the retirement community, more people like me (Gen Y) will be running the world and we will no longer need to meet in white shirts and ties to get business done. Translate – offices will shrink, and the butts will be in seats at home, in a coffee shop with wifi, or on a plane.
2) Co-working space – I have had the pleasure to sit and work in places like the Cambridge Innovation Center or MassChallenge where teams of lean start ups are scrapping away on great ideas without taking up massive footprints of office space. It would be contradictory of the Lean Start Up movement if companies suddenly filled up floors of downtown office towers at high rents once they made it. These companies that are driving the innovation economy, and represent the only flicker of job growth, are too smart to spend money on real estate. They will find a co-working space that provides all the amenities of a dedicated office as well as the intangible amenity of collaboration with other innovators. Or, they will find a cheap sublease like Gemvara did and backfill the seats that have been vacated by other butts.
3) Urbanization of America – Suburban office parks are in trouble. According to the Urban Land Institute’s 2010 report on emerging trends in Real Estate, “the prospects for investment are much stronger for smart growth than they are for sprawl.” This means cities are going to benefit from the little job growth that we will see in the coming future. Even the VCs that helped shape the suburban Boston office market are moving back into the city. Efforts such as redeveloping urban locations for transit oriented development, spending fewer natural resources on commuting, reducing residential footprints and providing 24 hour living environments will attract the largest generation of American workers since the Baby Boomers. One need not look any further than Biogen Idec’s move back into Cambridge after less than three years in their gleaming, yet sterile Weston campus to find out that people don’t want to work in the suburbs any more. As more and more suburban buildings are vacated for urban locations, hopefully there will be more butts in seats in the city to offset the emptiness left behind.