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Justin Reginato, Ph.D.
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If You Build Malls, You Might Want to Start Thinking About A "Plan B" (Hint: Get Involved With Online Retailers)

12/28/2012

1 Comment

 
"I don't think we're overbuilt, I think we're under-demolished" -- Daniel Hurwitz, CEO of DDR, a commercial property owner and manager, talking about malls.

I came across a blog post from Jeff Jordan, a Partner with venture capital firm Andreessen Horowitz.  The gist of the post is in its title: "Why Malls Are Getting Mauled."  Why would a venture capitalist be interested in malls? Because they fund online retailers (Jeff sits on the board of Fab.com and was previously a senior executive with eBay).  Online retailers are the antithesis of malls.  So even though Jeff is clearly rooting for online retailers in the online retailers  vs. malls battle (if that can be billed as an actual battle), he presents some very compelling data.  The data is interesting enough that Jeff expanded on his blog post in an article for The Atlantic Cites, which can be read here.

There are three self-explanatory figures from the article that are worth showing here:
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To summarize the above three figures, malls are hurting.  Rents are flat and vacancies are increasing.  And it's not like it's going to get better soon, seeing as many of the retailers that inhabit malls are hurting.  The growth prospects don't look good.  Hence the opening quote from Daniel Hurwitz.  Unless the weak malls and retailers are culled from the herd, traditional brick-and-mortor retail properties will suffer.  If you are a contractor that specializes in mall construction or sees a healthy percentage of your billings come from mall or brick-and-mortor retailers, this is troubling news.  The pace of construction in that market is likely to decrease further, that is unless growing retail trends in the United State reverse course.  If you are a contractor that has pursued work from retailers like Mervyn's, Circuit City or Borders, you already know this.

On the flip side, online retailers continue to grab market share from brick-and-mortor retailers.  So while the market is closing the door on physical retail space construction, it's opening one for all things associated with online commerce.

(*Note: I'm not predicting the death of malls and other physical retail stores.  They will survive.  There will just be fewer of them as time goes on if current trends hold.  With more sales going online and lower rents from physical stores, the economics will call for fewer physical retail stores, and hence, less investment in them.  But it won't go to zero anytime soon.  Plus, with vacancies going up, and spaces changing hands, there may be increasing opportunities for tenant improvements.  I just wanted to make that clear)

So what does working in online commerce look like for commercial builders?  Well, instead of clients like Sears, Macy's or Home Depot, your clients will be Google, Amazon, Facebook, Apple, etc.  Instead of expansive retail spaces split up for individual stores and large tilt-up buildings for big box retailers, projects will be office buildings filled with cubicles, high-tech warehouses with miles of automated conveyor belts for fulfilling orders, and server farms that hold gobs of data.  Google has an estimated 1 million servers split over 40 locations, and they're building more.  There will be much fewer marble entrances, water fountains, glass curtain walls and other fancy architectural finishes and much more electrical and HVAC components (server farms, for example, suck electricity and require a lot of cooling).

I will be coming back to this topic in the future because it's a deep vein of conversation.  Some topics I hope to cover soon include:
  • High tech companies like high tech buildings, which means contractors will have to become tech savvy
  • High tech companies also like energy efficient buildings, so LEED is here to stay
  • High tech companies are also interested in new delivery models, particularly those involving lean construction techniques
  • The competition for brick-and-mortor projects, which I predict it will become more competitive if there are fewer new projects
  • The competition for projects for high tech companies, which I also predict this will be highly competitive, but because there are fewer companies that can pull off these projects.  Apple's new campus attracted the best of the best, as will Google's new headquarters.  Contractors that are unable to think outside the box need not apply.

But for now, let's just acknowledge that the competitive landscape of retailing is shifting, so general building contractors and their trade partners must be prepared to shift with it. 
1 Comment
mortgage investors corporation review link
8/26/2013 07:39:50 pm

With regard to the current state of the economy, it would be good to make an investment

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