The companies represent different approaches to the future of real estate, and their success or failure will offer important lessons to landlords.
The collapse of WeWork’s $47 billion valuation was the most exciting real estate story of 2019. Landlords, lenders, customers and competitors watched in awe as the company crashed into a wall of scrutiny and ridicule. In 2020, Airbnb might offer a similar spectacle, with a $35 billion valuation and a growing number of questions about the company’s long-term prospects.
What propels both companies? The changing needs of end users and the growing appetite of venture capital investors to disrupt the way real estate assets are operated and transacted. Both trends will keep transforming the industry, regardless of the struggles of WeWork or Airbnb.
A Time of Transformation
The global economy is awash in capital. According to data from PitchBook and the National Venture Capital Association, venture capital investments reached an all-time high of $131 billion in 2018, exceeding the heyday of the dot-com bubble. Elsewhere in the financial world, the amount of capital available to institutional money managers is also at an all-time high, according to data from Preqin and Ernst & Young.
In theory, investors only want to fund “real” tech companies that have high margins, can scale quickly and operate in industries that are easy to disrupt. In practice, the industries that could be easily transformed by technology — media, business processes, financial brokerages — have already been transformed. As a result, investors are venturing further up the risk curve, seeking out companies that want to disrupt other, more challenging industries such as real estate, health care and mobility.
Beyond its direct focus on real estate, venture investment also fuels other trends that affect how buildings are used and valued. Remote work, drones, ridesharing apps, electric scooters and autonomous vehicles are redefining location and accessibility. Social media and digital marketing are changing the perception, selection and design of physical spaces.
More generally, the technology boom has resulted in a war for talent. That, in turn, makes tenants more demanding. At the same time, the abundance of capital allows companies to stay private for longer — away from the scrutiny of public markets. That makes it difficult for landlords and lenders to assess the creditworthiness of some of the largest tenants.