The future of commercial real estate development will be Agile

Back in 2001, several thought-leaders in the software development world got together and tried to reinvent the business processes behind turning code into something useful and marketable. The result is known as the Agile Manifesto and has spurred on a revolution in how software is made, with a pragmatic, market-driven and user-centric approach.

When AirBnB started eating into the profit margins of the established players in the lodging industry, the threat was not taken seriously at first. Savvy and agile investors quickly transformed small apartment buildings and houses into mini-hotels, creating a new class of social media-enabled commercial real estate investment property. Now, municipalities are actively trying to recapture lost tax revenue.

The folks at WeWork are making a similar play, but instead of going after temporary lodging, they are trying to tackle the problem of finding a suitable place to work when signing a long-term lease doesn’t make sense.

As with AirBnB, there is a trade-off for convenience and “coolness” and as a result, the profit margin for temporary workspaces is respectable, to say the least. The company’s recent $5-billion valuation has raised some eyebrows in the traditional commercial real estate world. Bloomberg’s Andrew Rice has more:

Many traditional real estate investors are perplexed by WeWork’s $5 billion valuation. With that kind of money, you could build the world’s most expensive skyscraper—One World Trade Center, which at 3 million square feet has roughly the same cumulative amount of office space as WeWork—and still have $1 billion left over. And its business model—leasing space wholesale from landlords and then subletting it at a margin in small blocks—is a familiar and fairly risky one. Publicly traded Regus, which dwarfs WeWork with its 2,500 locations in 110 countries, is worth $1.3 billion less by market capitalization. Neumann says doubters don’t grasp the scope of his plans for the workplace. “We are not competing with other co-working spaces,” Neumann says. “We are competing with offices. And that is a $15 trillion asset class in the U.S.”

Source: Bloomberg