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Thoughts

Will we see the “deconstruction” of the high street lease?

Huge tech companies offering services without owning the equipment, large enterprises replaced by nimble smaller firms, when will street level retail be deconstructed?

Back in early 2015, Tom Goodwin quipped that “Uber,  the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate.”  

Earlier this month, Matt Webb shared a hunch about a change in property management; “One shift I think we’re seeing is that property owners are no longer planning (as much) on making their profit from rent. Instead rent should get them merely to break-even. Profit comes from selling services to their tenants.”

Goodwin saw these companies as interfaces to clients, positing that they “own” the relationship with the client and are thus well positioned to change markets and gain enviable positions without even owning the actual “equipment” delivering the service. Webb draws our attention to the fact that with the internet, the cost of doing business has dropped dramatically, firms much smaller than before can now play outsized role and be viable for more people. That, coupled with the gig economy, means companies don’t want long leases anymore, paving the way for owners offering more services, and new companies like WeWork or Breather “deconstructing” leases by varying the length all the way down to hourly rentals and monthly contracts.

Those two insights are both important to keep an eye on but we’re also wondering how we can extrapolate that to retail space. With these “interface companies” grabbing market share from brick and mortar companies and with these other more nimble (and often short lived) firms, will we see something similar for stores? The popups we’ve been seeing for years as well as the hybrids of varying forms mixing shops, cafés, bookstores, and offices are both examples of reinventing street side retail but how might a “WeWork of the high street” work? Or will malls reinvent themselves with this kind of flexibility? Or perhaps we’ll see aggregators of spaces, offering “WeWorkish” space over multiple properties from different owners?

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