Maximizing The Third Space – A Key ICSC RECon 2013 Takeaway

Questions abound about where our commercial real estate market is headed. As many suspect, where we were prior to the Great Recession is not where we are now, and not where we’re headed as we move forward. Things have changed. We have entered an era where the so-called “Third Space” will dominate commercial real estate development.

What is the “third space“? Urban planners describe it generally as the space designed for creative social interaction, which lies, figuratively, between home and the workplace.

From a purely economic standpoint, it is difficult to see how brick and mortar retailers in today’s marketplace can effectively compete with internet retailers not burdened with comparable fixed costs. Internet retailers have a huge advantage when it comes to convenience, accessibility, and price-competitiveness as compared to fixed location, brick and mortar retailers. Unlike the pre-2008 marketplace, today’s shoppers enjoy virtually limitless access to online goods and services. Online shopping is easy and convenient.

To remind ourselves, the commercial real estate industry began its skid in the summer of 2008, after the collapse of the sub-prime residential lending market in the Spring of 2007. The commercial real estate market experienced a virtual death knell following the collapse of Lehman Brothers on September 15, 2008.

With this backdrop, and the ubiquity of iPhones and other smartphones in society today, we sometimes forget that the very first iPhone was not even released to the public until June 29, 2007.  The first Android smartphone was not introduced until October 2008.  Twitter and text messaging were in their mere infancy in 2008 as the commercial real estate market crash occurred. Today they are the leading means by which the discretionary income-rich millennial generation (those born between about 1980 and 2000) socialize and communicate.

Yes, technology and our retail culture have changed dramatically while the commercial real estate market has been on hiatus over the past several years. What does that mean to commercial real estate investors and developers?  It means our developments have to change too.

The leading takeaway from ICSC RECON 2013 is the need for commercial real estate developers, retailers, lenders and urban planners to grasp the immense changes to our culture borne by the lightning-speed proliferation of social networking and technology.  Commercial  real estate developments, whether new or retooled, will need to create a reason for consumers to come to our commercial projects to shop and spend. To be successful, our projects will need to be fully integrated, media rich environments providing prospective customers with a compelling reason to come to live, work and play. They will need to provide an enticing third space between home and work for consumers to spend their time and money.

The current push in Congress to mandate collection and remittance of sales taxes on internet-based out-of-state sales may help state and local governments fill their coffers, but imposing this tax will likely do little to help brick and mortar retailers.The fact that online sales may be taxed to the same extent as brick and mortar based sales is not likely to dissuade online shopping.

Rather than begrudge the impact of internet-based shopping on brick and mortar retail, developers and retailers alike will need to wholeheartedly embrace technology to create an enticing, in-person experience that integrates online social networks with face-to-face social interaction and shopping. This is the challenge of our time for retail and commercial real estate development.

Meeting this challenge will require, first, that we grasp it, and, second, that we envision how to effectively integrate fundamental real estate development concepts with new and emerging technologies. To get to the desired bottom line, we will almost certainly need to understand and focus on the third space.

Thanks for listening,

Kymn