Real Estate Trends 2024: Neighborhood Retail & Surprises

The Shifting Landscape of Real Estate Post-Pandemic

The recent pandemic dramatically accelerated the adoption of remote work and on-demand delivery services, changing societal norms at an unprecedented rate. Currently, as the world transitions beyond the pandemic's peak, geographical location holds less significance than it did previously.

Previously, modern society concentrated growth in major cities, characterized by towering office buildings and residential complexes. Now, the populations that once flourished within these urban hubs are reassessing how these spaces can be adapted for a world transformed by the pandemic.

Insights from Leading Real Estate Investors

I recently spoke with ten prominent investors specializing in real estate property technology to gauge their perspectives on the future of the industry. Their insights reveal a generally optimistic outlook.

The real estate sector, historically slow to adopt new technologies, now recognizes proptech as crucial for its continued evolution. However, considerable uncertainty surrounds the future of the office sector, particularly when compared to its pre-pandemic form.

These investors anticipate that remote work will remain a substantial component of the future work environment. They also predict sustained demand for housing in suburban areas and smaller cities. Fintech and SaaS solutions targeting single-family home sales and rentals are viewed particularly favorably.

While many continue to invest in major cities, their focus is shifting towards alternative housing options – such as co-living spaces and accessory dwelling units – and concepts related to climate resilience.

The Unexpected Resilience of Physical Retail

Perhaps surprisingly, some investors expressed enthusiasm regarding the potential of physical retail. Further investigation led me to concur with this assessment.

Despite initial concerns, we may be entering a more favorable period for small, locally-owned businesses. More detailed analysis is provided below.

Note: Extra Crunch subscribers have access to full responses from the individuals quoted, offering extensive information beyond what is presented here. Investors were also encouraged to disclose their own investments to illustrate their beliefs about the sector’s trajectory.

The Evolving Role of the Office in a Post-Pandemic World

The office environment is undergoing a significant transformation, increasingly resembling a luxury offering for renters, according to Clelia Warburg Peters, a venture partner at Bain Capital Ventures.

Historically, landlords held considerable power, but now a customer-centric approach is essential. The most forward-thinking landlords will understand the need to move beyond simply providing physical space and instead focus on delivering a comprehensive, multichannel work experience to their tenants.

Shifting Landlord Responsibilities and Tenant Expectations

This evolution includes offering supplementary services, such as software and hardware solutions for managing a mobile workforce. However, a fundamental shift in attitude is also required.

Tenants will need to be actively engaged and supported, as lease durations are expected to decrease. A more personalized and responsive relationship will be crucial for landlords seeking to retain occupants.

Suburban Office Space: A Potential Growth Area

The changes impacting office spaces may prove particularly advantageous in suburban locations.

Zach Aarons of MetaProp suggests that companies will continue to maintain a presence in urban headquarters, but many will also seek to provide employees with office alternatives in suburban areas. This allows for convenient access to a workspace without the lengthy commutes associated with city centers.

Consequently, MetaProp is actively exploring opportunities to acquire suburban office properties.

The Rise of Remote Work and its Impact on Office Design

Initial predictions suggested remote work would fundamentally alter the nature of office space.

Adam Demuyakor, co-founder and managing director of Wilshire Lane Partners, remains optimistic about major cities, but acknowledges that startups are increasingly becoming geographically independent.

This trend, in TechCrunch’s view, serves as a key indicator of future workplace dynamics.

Startups, previously constrained by the need to be near customers, investors, and talent pools, are now demonstrating greater geographic flexibility.

Data on Remote-First Work Models

A recent report by Kim-Mai Cutler of Initialized Capital further supports these observations. Prior to the pandemic, the Bay Area was the preferred location for starting a company.

Currently, a remote-first approach is the most popular choice. Portfolio companies are adopting either remote-first models or a hub-and-spoke system, featuring smaller headquarters and satellite offices. Furthermore, nearly two-thirds of respondents indicated they would not adjust salaries based on employee location.

While this data represents a limited sample, Demuyakor believes it provides valuable insight into the future of work, as startups are often early adopters of technologies that facilitate remote collaboration and are intensely competitive in attracting talent.

Repopulation Efforts and the Desire for In-Person Networking

Some landlords and cities are actively working to repopulate offices, while certain companies are expanding their office footprints or reaffirming existing commitments.

It remains to be seen whether these efforts, combined with the inherent value of in-person networking, will restore industry clusters and return the market to pre-pandemic norms.

Potential Scenarios and Technological Adaptations

Christopher Yip, a partner and managing director at RET Ventures, suggests that even if a return to pre-pandemic levels doesn't fully materialize, certain changes will likely persist.

Increased awareness of public health concerns may lead individuals to favor personal transportation options like cars and bicycles over mass transit, driving demand for related technologies. Real estate management will also prioritize technologies that enhance comfort, health, and hygiene, such as touchless systems and self-leasing tools.

Conversely, if a significant portion of jobs remain fully remote, retail and office properties could face continued challenges, potentially leading to conversions into affordable housing.

In such a scenario, short-term rental platforms like Airbnb and Kasa could gain prominence, allowing landlords to generate revenue from hotel-style stays in markets with weak residential demand.

A Moderate Outlook and the Importance of Flexibility

Vik Chawla, a partner at Fifth Wall, proposes a middle-ground scenario, anticipating that major cities will continue to attract knowledge workers and top talent.

However, remote work is expected to become an integral part of the work economy, necessitating increased flexibility in terms of time spent in the office versus other locations.

This shift will likely result in a moderate decline in rental rates, while cities that have experienced growth during the pandemic will foster innovation, leading to increased housing density and the adoption of alternative building techniques.

Long-Term Price Adjustments and Space Management Challenges

Andrew Ackerman, managing director of UrbanTech for DreamIt Ventures, foresees a gradual reduction in commercial office prices over time, accompanied by complex space-management issues.

As leases are renewed over the next 5-10 years, demand for office space will likely decrease, albeit not drastically. The central question becomes: what will be done with the excess space?

Converting offices to residential use presents challenges, as many modern offices feature deep, windowless interiors that are difficult to repurpose. Structural modifications can also be costly and complex.

Alternative Uses and Innovative Conversion Strategies

Exploring alternative uses, such as co-living or microunits, may prove more viable.

Repurposing office break rooms and open areas into shared kitchens, dining areas, and flexible workspaces could be a cost-effective solution, particularly if plumbing and gas lines don't require extensive rerouting. This approach could also allow for temporary conversions based on fluctuating market demands.

Proptech's Central Role in the Future of Cities

Regardless of their outlook on the office market, all respondents agree that proptech will be a crucial component of the next era of urban development.

A Shifting Landscape for Residential Housing

The availability of housing has become increasingly constrained in many areas since the onset of the pandemic, as demand from prospective buyers has risen while the number of homes offered for sale has decreased. Interestingly, even cities that were previously experiencing rapid growth have witnessed significant declines in rental costs.

Demuyakor, associated with Wilshire Lane, remains focused on addressing the challenges within the housing sector, including exploring solutions like co-living arrangements. He observes that, “Despite the current global situation, affording housing in major metropolitan areas – such as New York, San Francisco, and Los Angeles – remains difficult for millennials and Generation Z, given prevailing wage levels.” He further believes that demand for cost-effective living solutions will persist, citing co-living as a fundamentally economic choice.

Casey Berman, managing director and general partner at Camber Creek, posits that “cities will continue to be magnets for individuals seeking to live, work, and experience life, due to the density and opportunities they provide, which are now even more highly valued.” Consequently, he anticipates a resurgence in demand for urban spaces and properties.

Berman explains that his firm is investing in technologies designed to enhance safety and convenience in dense living environments. “We anticipate increasing adoption of these solutions,” he states. “Flex facilitates easier, installment-based rent payments, improving on-time payment rates for landlords. Latch’s access control systems are now present in one in ten newly constructed multifamily buildings. Furthermore, a substantial number of individuals adopted pets during the past year, and PetScreening simplifies pet record management and verification of service or support animal status.”

Robin Godenrath and Julian Roeoes, partners at Picus Capital, largely concur with this perspective, suggesting that innovative living arrangements in cities could facilitate more substantial changes in lifestyles.

“Flexible living solutions will empower remote workers to experience different cities with access to fully managed, affordable, and secure rental options for both short and extended stays,” they suggest. “Moreover, the conversion of commercial properties into residential spaces will contribute to lowering per-square-foot costs, enabling long-term residents to afford less densely populated areas. While co-living increases density in multifamily buildings, we anticipate its continued relevance as the growing trend of remote work emphasizes the importance of living communities, given reduced workplace social interaction.”

However, advancements in proptech are also enhancing the appeal of suburban and rural living. Innovative technologies designed for modern living are adaptable to any location.

Proptech has also contributed to the recent surge in suburban growth. “A noticeable trend of reverse urban migration is driving increased demand for suburban lifestyles,” it is noted. “Proptech companies have played a crucial role in enabling this shift by digitizing the processes of buying, selling, and renting homes – including iBuyers, alternative financing options, and technology-driven brokerages. Additionally, proptech has reduced the need for physical interactions through remote appraisals, 3D/VR tours, and digital communication, allowing buyers and sellers to transact efficiently and safely throughout the pandemic.”

Ultimately, the same technologies that enhance affordability in cities can also benefit suburban areas. “We firmly believe that the accelerated digitalization of home transactions, coupled with the growing demand for suburban housing and evolving buyer demographics – such as tech-savvy millennials – creates numerous opportunities for proptech to significantly impact suburban living across construction, access, and lifestyle. This encompasses companies focused on built-to-rent developments, modular homebuilding, affordable housing, community building, and digital amenities.”

Many investors interviewed emphasized the growing trend in the single-family rental market, as Christopher Yip from RET points out.

“Over the past decade, the single-family rental (SFR) market has experienced significant growth, attracting substantial investment from major players,” he says. “The SFR sector is well-positioned to benefit from the migration away from cities, and the technologies supporting SFR are likely to have positive ripple effects throughout the industry.”

“SFR portfolios present unique operational challenges compared to multifamily properties, with more varied unit layouts and greater geographic dispersion,” he explains. “Technology can streamline operations and maintenance for SFR operators, with smart home solutions like SmartRent enabling self-guided tours and management of these distributed portfolios. We are optimistic about this space and closely monitoring proptech tools serving this market.”

Andrew Ackerman of DreamIt concurs. “The single-family market has been relatively overlooked, but is slowly gaining interest from both an asset and proptech perspective. We invested in startups like NestEgg and Abode, which serve this ecosystem, even before the pandemic. COVID-19 has proven beneficial for these startups and increased attention on opportunities within the single-family sector.”

Stonly Baptiste and Shaun Abrahamson, co-founders of Urban.us, envision a diverse range of options emerging across different regions, with co-living and short-term rentals enabling individuals to explore new lifestyles. “Companies like Starcity are thriving, as co-living addresses not only cost but also a crucial, often overlooked need – access to community. We also foresee opportunities for more nomadic lifestyles. The discussion surrounding Miami often centers on people relocating there, but a more pertinent question for many locations may be whether individuals will spend several months of the year there. This could mean seeking locations near activities like mountain biking, surfing, or snowboarding. Starcity simplifies transitions between city locations, while Kibbo extends this concept beyond cities by fostering communities around van life.”

Clelia Warburg Peters of BCV outlines how these changes are impacting the suburban market.

“The disruption in the residential transaction process is now settling into three primary categories: iBuyers (who directly purchase homes from sellers, aiming to control the sell-side marketplace), neobrokers (who employ their agents and offer ancillary services like title, mortgage, and insurance to increase revenue), and elite agent tools (platforms or tools designed for top-performing agents).”

This convergence of innovations is reshaping the residential real estate landscape. “[C]onsumers are increasingly receptive to alternative financing options, including home-equity-based models (where a stake in the home is sold, or ownership is acquired over time). The growth and proliferation of these new models are consolidating the residential market, integrating brokerage sales commissions with those from mortgage, title, and home insurance into a single, disruptable market.”

The Resurgence of Local Retail Experiences

The appeal of a vibrant Main Street, brimming with independent, accessible businesses, remains strong for many individuals. However, those striving to maintain successful independent retail establishments have faced a series of significant challenges.

The growth of e-commerce, spearheaded by Amazon and the wave of online retailers in the 1990s, initially impacted traditionally narrow profit margins. Subsequently, art galleries, upscale dining establishments, and boutiques often signaled gentrification in urban centers. Landlords in these areas frequently increased rental costs as more affluent residents arrived, contributing to a surplus of vacant storefronts even in desirable locations.

The pandemic initially appeared to be a devastating setback, prompting even dedicated customers to shift to online purchasing while local businesses were forced to temporarily close.

Despite these difficulties, a number of investors are displaying surprising optimism. Although the pandemic dramatically altered social and economic patterns for over a year, a consensus emerged that in-person retail experiences are a vital component of contemporary life.

Peters articulated this sentiment, stating, “As fundamentally social beings, people will likely seek out face-to-face interactions once it’s safe to do so. Furthermore, the move away from a traditional five-day workweek in the office may foster a greater need for ‘third spaces’ – locations distinct from home and the formal workplace.”

“We are likely to witness a continued trend toward ‘Apple store’-style retail environments, prioritizing customer engagement and brand experience over simply selling products. Given the anticipated decrease in retail rental rates following the pandemic, I believe we’ll see increased experimentation. This period will be particularly interesting for the retail sector.”

Numerous others share this perspective, whether through investments in retail technology or broader support for third-space concepts.

Yip of RET acknowledges, “Retail has been evolving for over a decade, with the range of products commonly purchased online expanding from books and clothing to prepared foods and groceries. The pandemic has undoubtedly accelerated e-commerce growth, negatively impacting brick-and-mortar retail. However, people still desire in-person experiences. Even if cities don’t fully recover, major metropolitan areas will retain sufficient foot traffic to sustain retail, and innovative models like pop-up shops can address vacancies. Public markets also maintain confidence in the retail sector; while major REITs struggled in 2020, many have rebounded and even exceeded pre-pandemic levels. It’s been a challenging decade for retail, but it’s premature to dismiss the sector entirely.”

Godenrath and Roeoes of Picus point to movie theaters as an example of a retail sector poised for success as public life normalizes.

“Cinemas, often key tenants in shopping centers, were already enhancing the traditional moviegoing experience with features like reserved seating, 4DX visuals, and in-theater dining. The pandemic spurred further expansion of these offerings, including private theater rentals and events. We anticipate this trend will extend across the retail real estate industry, from restaurants offering immersive culinary experiences to traditional retailers integrating online and offline shopping. Proptech will be crucial in helping owners identify tenants, market properties, and retailers enhance customer engagement and understand customer behavior.”

Interestingly, the internet is now proving to be an ally. “We also foresee significant potential in hybrid models seamlessly blending online and offline experiences,” they explain. “Consider the fitness industry, where in-studio classes could be broadcast to a wider audience, and apps could track progress during both in-studio and at-home workouts.”

Retail intersects with numerous other solutions investors are backing, particularly those aimed at improving cities and addressing challenges like climate change.

Baptiste and Abrahamson observe, “Cities possess underutilized assets, notably public spaces dedicated to cars. A key shift will be reallocating parking spaces to micromobility – bike lanes, scooter parking, etc. We’re seeing strong demand for companies like Coord (curb space management), Qucit (bike and scooter share), and Oonee (secure micromobility parking).”

This initiates a positive feedback loop, they suggest.

“Reducing car access will encourage the use of electric micro-EVs for logistics. Parklets and seating areas will expand social spaces. The EU is leading the way in banning cars, but reduced car access will likely enhance city attractiveness – trading private living space for increased communal areas. This may also drive co-living arrangements, reducing the cost of urban living while maximizing shared spaces, which offer advantages over lower-density communities.”

Demuyakor of Wilshire Lane shares a similar outlook.

“Our strategy has consistently focused on space utilization and leveraging technology to monetize underutilized areas. This is evident in our recent investments: Stuf and Neighbor (monetizing basements and parking garages), MealCo (monetizing vacant kitchens), WorkChew (monetizing restaurant and hotel spaces), and Saltbox (monetizing empty warehouses). Landlords can employ these strategies to mitigate rising vacancy rates in the real estate industry.”

If this approach proves successful, retail may evolve to prioritize shared spaces. “WorkChew, which recently secured funding, is experiencing high demand from both suppliers and customers. Hotels and restaurants are eager to monetize underutilized spaces, while employers see it as a valuable amenity for hybrid workforces seeking alternatives to the traditional office.”

Additional factors support the future of retail, beyond those explicitly mentioned by the investors interviewed.

• First, the pandemic witnessed the creation of millions of new businesses, surprising economists and policymakers. Many have a strong local focus, offering services like food delivery or internet-based products with local followings. These entrepreneurs initially focused online and now, with falling commercial rents, can afford a physical presence.
• Second, many local businesses that survived the COVID-19 pandemic successfully adapted to the internet. Check your preferred delivery apps to see which local businesses are still thriving.
• Third, landlords are beginning to lower prices, creating a renter’s market for the first time in decades.
• Fourth, new financing options are emerging for traditional businesses, potentially enabling companies with successful online operations to secure funding for expansion. For example, Shopify’s investment in Pipe.com, a platform for trading recurring revenue, could provide new capital to small businesses at a time when storefront locations become more affordable.

Combining these trends with broader shifts toward climate-friendly cities and increased density, a future emerges resembling the vision of New Urbanists.

These concepts are also being implemented in smaller cities, suburbs, and towns, all competing to offer the highest quality of life – unless the traditional benefits of industry clusters unexpectedly return.

Even if industry clusters don’t re-establish themselves, some landlords, lenders, and city budgets may face challenges, potentially hindering the economies of otherwise attractive cities.

However, even in this scenario, a revitalization of places like New York and San Francisco could focus on housing, retail, and amenities. Perhaps future generations will view recent decades as a period of struggle before a collective turning point during the pandemic led to more sustainable solutions.

I encourage readers to explore the complete responses from the investors I interviewed. Each individual offered valuable insights beyond what could be included in this article. A subscription to Extra Crunch is required to access the full interviews.

I will continue to cover the future of proptech and cities. Please share your thoughts by emailing me at eldon@techcrunch.com.