It’s complicated: A real estate market without product types

Hotel, apartment or office tenant lounge? In today’s CRE world, lines are blurring between product types. The space pictured is Golub & Company’s 1001 South State, a new apartment tower in Chicago’s South Loop neighborhood.

By Margy Sweeney

Try telling a Millennial they can’t play where they work, or work where they live and shop. You won’t get far. The generation that brought us the status of “It’s Complicated” is changing the commercial real estate landscape, challenging traditional definitions of what makes office, industrial, retail, hotel and multifamily developments successful.

Spoiler alert: Success comes to those who mix it up. As this generation seizes influence over culture, architecture and urban-planning trends, silos that separate property types are crashing down.

This blending is not coincidental; our culture is becoming less and less compartmentalized. Once, when you were at work, you sat at a desk or worked at a machine—and you left the work behind when you walked through the door. Now, work goes wherever there’s a laptop and high-speed Internet. Gyms once existed as standalone real estate; they are now considered standard amenities for office and apartment buildings alike. And like work, shopping can be done from anywhere with connectivity.

The market-mover in this equation is choice. The more flexible a property, the more options that exist for its uses, and therefore its cash flow. Here are a few ways property types are mixing and melding in the Midwest.

Multifamily neighbors that work together, play together 

While ground-floor retail has always made life easier for urban apartment dwellers, successful multifamily developments are now bringing other uses into the mix. For example, Golub & Company’s 1001 South State Street offers both a communal co-working center and a MakerSpace lab.  In a highly competitive market, multifamily developers in the city and suburbs alike are trying to bring working, shopping and playing together with housing, fully realizing a “live, work, play” world.

Adaptive re-use of other property types into housing is another way that the market is trending toward a post-property type world. Housing re-developers are renovating properties as varied as well-located churches, fire stations, elementary schools and other special-use facilities. Similarly, luxury apartments are becoming more like hotels, with lobby lounges, concierges and poolside service.

Hotel-inspired offices

Much like apartments, offices, too, are borrowing a page from the hospitality sector’s playbook, sometimes making a day at the office a lot more like a day at The Plaza. Class-A buildings are beginning to offer tenants amenities formerly reserved for high-end hotels, as is the case at 200 West Washington. But the property-type mash-up isn’t reserved just for the high end of the market; older properties like the former Oakbrook Executive Center – now Oakbrook 22 –  are being revived with redevelopment that focuses on bringing office tenants together with shopping, dining, public shared spaces and other uses in a single location.

According to Scott Delano, Design Director at Wright Heerema Architects, a broader approach to office interiors is becoming increasingly urgent in an age where technology like video conferencing, conference calls and webinars have made work less human.  The design of an office now calls for collaboration between designers focused on hospitality, residential and other product types, to diffuse the notion that work takes place in a vacuum.

After all, he says, “Humans do not exist in silos—we all go to work, go to restaurants, shop and live somewhere. There’s no reason offices should be designed without the richer feeling of those other environments.”

Retail-inspired hotels

While offices are inspired by hotels, hotels are also drawing inspiration from other property types, namely retail. While hotels have always offered amenities for their guests, increasingly, hotels are playing an active role in the live-work-play communities in which they exist, catering to locals and area businesspeople with eclectic retail amenities on the ground floor.

At the recently-renovated Hotel Phillips in Kansas City, for example, Kilo Charlie is an artisanal coffee shop on the first floor that serves locals and guests alike in the morning.  In the evenings, the same diverse crowd will be able to crowd into a ‘speak easy’ lounge—built out in a basement that was previously a non-revenue-generating portion of the building.

Not surprisingly, the owners behind the renovation are two under-40 CEOs: Vamsi Bonthala, CEO of Arbor Lodging Partners, and Sheenal Patel, CEO of NVN Hotels.  Patel observes, “We look at every renovation we do through the eye of the guest, and also the local community.  We look at ways to increase our ROI, while also playing a broader and richer role in our guests’ overall travel experience. Many times, that means we partner with well-known restauranteurs or artisanal coffee vendors to bring uniquely curated F&B offerings to our guests. Reinventing a hotel is never just about the hotel.”

The industrial sector in a post-product type market

In a world beyond product types, industrial facilities perhaps stand to gain the most significantly.  An outdated industrial building might not work for today’s sophisticated e-commerce tenants—but as a call center, it’s well-located and well-designed. An office building from the 1950s might not cut it for demanding office users, but it may be located exactly where a data center is needed the most. According to JLL research, demand is growing for both call centers and data centers in 2017, both driving demand for repurposing former industrial space.

Colorful grey areas

The commercial real estate world was once dissected into specializations, property types that didn’t offer much overlap.  Retail real estate served shoppers, while industrial real estate served logistics companies and distributors. E-commerce has blasted that wall, much like the walls dividing the approaches to office and hospitality design.  As our cultural preferences lean toward silo-busting, so will our real estate. In the future, the most successful professionals in this business will be the ones to ‘think outside the property type,’ as we work together to design, build and manage the commercial real estate of the future.

Margy Sweeney is an entrepreneur with 20+ years of experience marketing and publicizing commercial real estate. She is the founder of business growth consulting firm @TeamAkrete.

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This entry was posted in Chicago Commercial Real Estate, Illinois, Illinois real estate, industrial real estate, Kansas City commercial real estate, Kansas Commercial real estate, Missouri commercial real estate, multi-family, office, retail and tagged , , , , , , , , , . Bookmark the permalink.

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