Environmental, social, and governance investing was mostly uncontroversial for years. Most investors liked supporting ‘sustainable’ policies, and while there were opposing viewpoints, it was not a hot-button issue. The George Floyd protests changed this dynamic, as many companies vigorously supported social and environmental justice during a tumultuous 2020 summer of marches, riots, and hashtags. A backlash against some ESG principles has followed, especially in the United States, and the formerly ho-hum

Environmental, social, and governance investing was mostly uncontroversial for years. Most investors liked supporting ‘sustainable’ policies, and while there were opposing viewpoints, it was not a hot-button issue. The George Floyd protests changed this dynamic, as many companies vigorously supported social and environmental justice during a tumultuous 2020 summer of marches, riots, and hashtags. A backlash against some ESG principles has followed, especially in the United States, and the formerly ho-hum topic of impact investing has become yet another flash point in the culture wars.

Conservative opposition against ESG was initially less aggressive but has become more heated and has even sparked anti-ESG legislation. The backlash is having a chilling effect by some measures. A recent analysis found that S&P 500 companies have reduced mentions of ESG in earnings calls by 30 percent since 2021. Some publicly traded companies are removing references to diversity in regulatory filings and being more quiet about net-zero goals. Critics call the new silence about sustainability initiatives ‘green-hushing.’

For better or worse, the landscape for ESG has changed. The term is so politically charged that the most prominent purveyor of it, BlackRock’s Larry Fink, has stopped using the phrase altogether. In some cases, the controversies have had real impacts. A dozen financial firms, including BlackRock and Blackstone, now list anti-ESG efforts as risks in their annual reports. Last year, 23 GOP-led states’ attorneys general sent a letter to the Net Zero Insurance Alliance asking for information about insurers’ membership. It led to 12 of the 28 insurers to leave the group. In-house corporate counsel across the U.S. calls this phenomenon ‘ESG dispute exposure,’ and it’s rising. 

What makes the situation harder to handle is the pressure coming from both sides of the political aisle. While GOP-led states are proposing anti-ESG legislation, Democrat-led states like California, New York, and Illinois are proposing and enacting laws requiring stricter impact investing mandates. For example, a new Illinois law requires public funds investment managers in the state to comply with disclosure rules that integrate sustainability factors. Lawmakers in 46 states proposed ESG-related legislation in 2023. The bills ran the gamut from mandated corporate climate disclosures to bills that would prohibit state comptrollers from using ESG criteria as a screening method for selecting funds to invest in state pension funds. Companies are also facing legal action from shareholders who allege corporate sustainability efforts don’t go far enough, are misleading, or go too far. Businesses are stuck in the middle of this minefield, facing an uneven regulatory landscape and often scrutinizing every sustainability-focused public statement they make.

The politicization of ESG presents challenges for the real estate industry, but according to some industry insiders, it may not be as bad as some suggest. Maureen Waters is the Chief Growth Officer at Measurbl, a firm that provides software to track, manage, and report on ESG data. Waters said the controversies over the past few years haven’t materially impacted her company. “There was a pause at the end of last year that caused some people to take a step back, but that’s in the rear-view mirror now,” Waters said. “The decarbonization of real estate is not something we can ignore.”

As Waters alluded, the E (environmental) is the factor most focused on in the ESG formula in real estate. Building performance standards that mandate decarbonization are sweeping across U.S. cities and states. Tenants seeking environmentally friendly properties to meet sustainability goals are also pressuring landlords. Sustainable properties have a ‘green premium,’ but increasingly, they are becoming the norm. Some occupiers may not be willing to pay market price for non-sustainable buildings.

The effects of climate change on real estate are also harder to ignore. The U.S. saw at least 25 weather related disaster events last year where losses surpassed $1 billion, per The National Centers for Environmental Information. The ongoing natural disasters have had several impacts. They’ve forced more building owners to consider climate adaptation and resilience. Real estate owners in coastal cities are forced to mitigate increased flood and storm hazards. In states like Arizona, a groundwater shortage is hampering development and forcing building owners to think more about drought resistance. The rising cost of property insurance in states like California and Florida also puts climate change more on property owners’ minds. All these factors are making addressing the environmental aspect of ESG more of a priority in the real estate industry.

A proposed SEC rule requiring publicly traded firms to provide reporting on climate-related risks, emissions, and net-zero pledges will also affect real estate and bolster ESG commitments. A common complaint about ESG is the catch-all term needs more standardization, leading to confusion over whether firms are really achieving what they say they are. “At the moment, there are 1,000 different reporting schemas, gray areas of carbon accounting nuances, and conflicts among different standards,” said Andy Anderson, Chief Sustainability Officer at Tango. The proposed SEC rule would change that, even if it doesn’t require reporting Scope 3 emissions. The rule’s impact will extend beyond publicly traded companies and affect property owners. If a tenant is a publicly traded company, the building owner will be responsible for supplying information to help them meet the requirements. Owners, lenders, investors, and occupiers will all be required to make these disclosures for their real estate holdings.

The political backlash against ESG has garnered attention, but its impact is debatable. Anti-impact investing laws present challenges, but most of these laws are watered down before being enacted. Even in states like New Hampshire, where Republicans control both the governor’s office and state house, if legislation is too aggressive, it may fail to pass legal muster. Many real estate firms and investors may realize this. “I don’t think the backlash or headlines you see has changed investor sentiment,” said Danielle Ash, a partner in the real estate practice of law firm Adler & Stachenfeld. 

Ash explained that Goldman Sachs, Blackstone, and others have continued with sustainability principles, and these companies set the tone for the broader market. They have pressure from international investors, who often must comply with more stringent requirements in their home countries. There’s also still a pool of U.S. investors who continue to ask for sustainability reporting.

A likely outcome of the political feuding over ESG is that we’ll hear the term used less often, or it will be re-branded. Some sustainability advocates suggest ditching the term but doubling down on the action. ‘ESG dispute exposure’ has created a legal minefield and a patchwork of confusing regulations nationwide, so companies will still need to proceed with caution. In a presidential election year, the battle against ‘woke capitalism’ could also heat up. But for most real estate firms, environmental, social, and governance goals remain a priority, and that’s unlikely to change, even if they talk about them less.

WiredScore was started through a partnership with the City of New York and real estate owners in 2013 as part of an initiative to expand the city’s wireless connectivity. Since then, thousands of buildings around the globe have earned WiredScore certifications for how well their buildings are able to provide internet, wi-fi, and cellular connection. The company has since expanded to include a smart building certification called SmartScore. Now, the certification company is in 40 countries around the world

WiredScore was started through a partnership with the City of New York and real estate owners in 2013 as part of an initiative to expand the city’s wireless connectivity. Since then, thousands of buildings around the globe have earned WiredScore certifications for how well their buildings are able to provide internet, wi-fi, and cellular connection. The company has since expanded to include a smart building certification called SmartScore. Now, the certification company is in 40 countries around the world and is looking to continue its expansion and adoption. Arie Barendrecht, the founder and CEO of WiredScore, spoke to Propmodo about how digital connectivity has evolved over the last decade, the firm’s latest product that focuses on building portfolios, and what he would be doing if he wasn’t leading WiredScore.

This interview has been edited and condensed for clarity. 

How are you? How’s your year going so far?

I’m doing great, the year is going well both personally and professionally. I’ve been able to do a bit of travel this year on the personal side, some skiing, which has been nice, and WiredScore has been off to a really strong start. I think our team feels like it’s firing on all cylinders, but maybe more importantly, it feels like there are signs that the macro market has an uptick of energy, which is also good news for everyone in the space. 

It’s been just over ten years since you launched WiredScore. How did it feel to hit that milestone, and how do you feel about what you’ve accomplished in that time? 

It’s a bizarre feeling because, and it sounds cliche, but it feels like it’s been forever, but it also passed by in a blink of an eye. It’s fun to hit milestones like a ten-year anniversary, which was September 30th of last year, because it does force some reflection. When you have to run a company, you’re not doing a ton of that; you’re looking ahead 99 percent of the time. For us, it was a time to celebrate. 

We now have over 4,000 buildings around the world that we have certified through our two products, WiredScore and SmartScore. We also work with over 1,000 companies and have over 1,500 WiredScore accredited professionals who are folks that we partner with to help sell and deliver our certifications. It is all beyond my wildest imagination. 

I’m really proud of where we’ve come from and what we’ve accomplished. The metric we use internally that gets us the most excited is distilling down our certified building footprint into people we’ve impacted. Humans working or living in the buildings that we have certified through WiredScore and SmartScore. Obviously, we used a formula to do that in terms of density, but we estimate that over 8 million people work or live in WiredScore buildings, and that is our North Star because we get really excited about our opportunity to impact the built environment and make buildings better. If we’ve helped 8 million people be in better buildings, then that’s something to be especially proud of. 

When you first launched WiredScore, you partnered with then Mayor Bloomberg and New York City’s Economic Development Corporation. What was it like partnering with the city and working with Mayor Bloomberg?

It was amazing actually. Mayor Bloomberg had a great reputation obviously, but especially with the real estate community in New York. The partnership brought immediate credibility to WiredScore, which is really important because landlords are risk averse. They want to work with partners with staying power, and that they can trust. It’s especially true of a standards company. It also created a bit of a shared mission between WiredScore and the city and landlords and everyone involved, the shared mission being that we’re all working together to make New York City an attractive place to sign a lease and to locate your company. 

Having more transparency about the best-connected buildings was a good way to attract and retain innovative companies in the city. That was a big part of Bloomberg’s mission, to try to create a rival to Silicon Valley, and I think he did a really good job of that. And I’d like to think our partnership in New York, being the first city in the world to have a rating system for connectivity, was a small but important part of his overarching initiative to make NYC a global tech hub.How did that partnership come about? 

We partnered with the Economic Development Corporation [EDC] and shared the idea of this rating system. The partnership was formalized through a proposal process, the type that the EDC issues all the time, and we responded to an RFP to be the partner in creating and rolling out the initiative. One of the things the EDC did after we became formal partners, which was also super helpful, was they assembled an advisory committee, much better than I would have been able to do on my own. We had representatives from the Department of Buildings and Department of Information Technology, people from big tenants like Google, Cisco, and eBay, and, of course, landlords. I had Rudin Management on my initial advisory committee as I was creating the early version of WiredScore, so I had immediate access, because of the city’s help, to a bunch of smart brains to help create the best platform possible. 

What’s the latest product your company has been working on? 

The thing we’re spending a lot of time on is something we launched last year, which is called WiredScore Portfolio. Which is a version of our certification that we partner with landlords on when 70 percent of their portfolios are certified or more than 70 percent. We arm landlords with special tools and a platform for tracking the state of connectivity and smart technology across all of their assets, as well as benchmark data on what the rest of the data has from a technology capabilities perspective. 

What’s interesting about WiredScore portfolio is that it’s reflective of a big trend in building tech, which is it’s increasingly moving from asset by asset strategies to a centralized technology strategy for large building portfolios. We’re seeing the creation of smart buildings teams within real estate organizations, and a real centralization of responsibility to have technology plans for the next 5 or 10 years to modernize assets. And WiredScore Portfolio is our way to sort of shepherd that centralization and make sure we’re being helpful to companies that are taking that approach.

It’s striking how a lot of buildings have outdated infrastructure that can be very costly to update and how many owners were not aware of the need to update. Do you think that level of awareness has changed over the last several years?

You’re right about that. When we launched WiredScore in 2013, we had a survey, a questionnaire that landlords could take on our website to sort of run a self-assessment of your building’s connectivity without us having gone inside the building to inspect and validate. And no one was taking the questionnaire. As I dug into the problem, it was because no one knew the answers. They literally couldn’t fill out the questionnaire because they didn’t understand which service providers were in their buildings with which type of service and so on. 

I do think awareness has shifted over the last decade. I think the reason for that is an acceptance of responsibility from the perspective of the landlord. When we launched WiredScore, most landlords believed that digital infrastructure was a tenant’s responsibility. The landlord would provide the box and hand the keys over, and everything else was up to the tenant. Which was a high friction sort of attitude because a lot of that equipment, a lot of the stuff that powers connectivity in our offices, is actually in the landlord’s spaces. 

So there was a lot of sort of butting of heads when it came to that mindset. That’s changed a lot over time. Although there are still a lot of question marks, now with the advent of smart building technology and connected building systems, there’s still this friction between users of buildings and owners of buildings as to responsibility for who should be deploying the technology. Who gets the data that connected systems produce, and who can do what with that data? It’s really sort of the Wild West. 

But landlords definitely accept more responsibility today, and that’s a good thing. Because without landlords putting in those technology foundations, there’s really nothing tenants can do in their spaces meaningfully to deliver great connectivity and smart technology to their employees, so it’s good to see that shift. 

So, at some point, has the bar started to get raised for connectivity in buildings, and will you have to move the goalposts or add more certifications over time to reflect that upward shift? 

We have, and you’re absolutely right, the bar gets raised, and it gets raised for two reasons: advancement in technology and evolution of tenant expectations. For example, ten years ago, we didn’t have mobile signal strength in our scorecards. But now, with 4G, the advent of 5G, and the expectation that your cell phone should work anywhere in the building, there’s way more pressure in 2024 than in 2013 to support mobile signals throughout the building. So we evolve our scorecards every two years, and we think that’s a really important function for us to play because in moving that goalpost, it’s our way to tell the industry what’s next.

The other thing we’ve done is we’ve created a second certification which I mentioned earlier called SmartScore. While WiredScore focuses on internet, wi-fi, and cellular, SmartScore focuses on the full breadth of building systems that impact operating efficiency and tenant experience. That’s access control, visitor management, air quality, HVAC, fault detection, maintenance and operations, and so on. And today, we toss the term smart buildings around quite a bit, but the industry is very far from meeting our definition of what a smart building is. 

So, what’s the competitive landscape like right now? Since you’ve launched, have many rival companies popped up? Were there any to begin with?

We are proudly the only digital connectivity certification in the world. There are a few other smart building certifications out there, but we are about 20 times larger in footprint than our next closest competitor as a smart building certification. I think it’s important to think about how there’s a lot of value in having a single, agreed-upon standard. Because when there are multiple standards for the same thing, there’s a lot of confusion between the ecosystem—landlords and tenants and brokers and architects and engineers—and we view it as our responsibility to be the global leading standard to ensure that the industry has a clear line of sight into a single way of measuring things. 

In part, that’s fueled our international expansion. Most proptech companies don’t go to 40 countries around the world because it’s really hard. But when Hines develops a building we want them to be able to follow WiredScore and SmartScore standards, whether that’s in New York or Mumbai or Hong Kong, and that makes things a lot easier on landlords and developers. 

Do you want to continue growing geographically in the future?

We aspire to be fully global and eventually be in every country in the world, but we won’t be hiring WiredScore teammates on the ground in every country. What supports our international expansion is this network of WiredScore accredited professionals, people that we partner with to help deliver services. The other thing we aspire to do is expand across asset classes. Today, we work with office buildings and multifamily buildings, and in the future, there should be a WiredScore or SmartScore available for hotels, industrial assets, and retail spaces. I get calls and texts that airplanes need WiredScores, trains need WiredScores, and coffee shops need WiredScores—we’re not quite there yet, but who knows down the road. 

Have you traveled to all the countries you’ve expanded into? 

I have not yet. I’d love to, but my wife and dog would prefer that I am not on the road that much. 

How long have you lived in New York?

I’ve been here nearly 14 years. 

Same here. Do you still feel the same way about the city as you did when you first moved here? 

I do have that sort of cliche feeling every time I’m driving across a bridge from LaGuardia or JFK back into the city, where you sort of look into the skyline and feel like there’s no better place to be. But I am a Southern Californian by childhood, and I’d be lying if I didn’t say I look at the weather app on my phone at Manhattan Beach probably every other day, check the surf reports, and think what life might be like on that side of the country as well. 

Do you root for any New York teams, or are you sticking to your Southern Californian teams? 

For better or worse, I’m stuck with my California teams. I’m a diehard Lakers fan, which has been fantastic for many years, but this year has had frustrating ups and downs. And unfortunately, when you cheer for a West Coast team, that means often my basketball viewing starts at 10 pm Eastern, and if it’s a good game, I might get sucked into the third or fourth quarter, which is not always the best for my sleep schedule. But I can’t help myself. 

What do you think you would be if you hadn’t created WiredScore? 

It’s funny; it’s a good transition from your last question. I think the job I envy the most and would love to do someday still is to be a basketball coach. For one, I spend a lot of time doing it from the couch, as my text message groups would confirm. Basically thinking of new lineups, offensive sets, defensive strategies that the Lakers should be rolling out. 

But in seriousness, as I look back to the most influential people in my life, many of those people have been coaches and, specifically basketball coaches. Basketball teams are pretty small compared to other sports, and your coach has sort of an outsized influence on who you are as a human being in critical times in your life. I feel like being able to have that impact in the future and stick close to a sport that I love is pretty cool.

Have you thought about doing an intramural league with WiredScore? Maybe you can coach it?

You know that’s possible. I do play in what they call an old man league at the moment with some of my friends. We have rented a basketball gym for WiredScore before, which has been pretty fun. Some pretty good talent on the WiredScore team. 

In 2022, a Columbia University real estate professor published two papers that took on a life of their own. The academic research examined the impact of remote work on office real estate values and the cities that depend on them, such as New York City. Overshadowing the research itself was a term that was coined: “urban doom loop.” Since then, headlines of doom about the fate of cities like New York and San Francisco have garnered much attention. A phrase as foreboding as “urban doom loop” does have

In 2022, a Columbia University real estate professor published two papers that took on a life of their own. The academic research examined the impact of remote work on office real estate values and the cities that depend on them, such as New York City. Overshadowing the research itself was a term that was coined: “urban doom loop.” Since then, headlines of doom about the fate of cities like New York and San Francisco have garnered much attention. A phrase as foreboding as “urban doom loop” does have a catchy ring to it, sounding as much like a blockbuster movie title as an academic term.

The theory isn’t hard to understand. We can see evidence of it in cities around the country, from Washington, D.C., to Boston to Seattle. The pandemic shift to hybrid work makes downtown office space less valuable, which lowers a city’s property tax revenue. Workers move away because they’re no longer required to be close to the office, and they take their tax dollars and retail spending with them. Businesses close and empty storefronts proliferate. As the city’s tax collections dry up, social services get cut. Downtown foot traffic decreases, except for an uptick in homelessness. Crime increases. More people feel unsafe, causing more to leave the city. More storefronts and offices empty out, and the vicious cycle, or loop, continues.

In Boston, office property values are expected to fall about 30 percent by 2029, causing the city to lose roughly $1.5 billion in tax revenues in the next five years, according to Tufts University’s Center for State Policy Analysis. A McKinsey report made headlines last summer, saying hybrid work would wipe out an estimated $800 billion in office value in nine cities by 2030, including Houston, New York, and San Francisco. In Boston’s case, about 22 percent of its total budget for the fiscal year 2023 came from office building property tax revenue. Other major markets like Chicago and Miami don’t depend on commercial property taxes as much because of reliance on local sales and income taxes.

The stark decrease in office property values is the first step of the urban doom loop. But as much as the “crash bros” would like you to believe, the reality of the situation is more nuanced. The second step in the doom loop is residents fleeing the city. This may have happened in the early days of the pandemic, but migration outflows from major cities are slowing. A recent Federal Reserve Bank of Cleveland report predicts that New York City’s net migration will be fully on track with pre-pandemic trends within the next few months. The migration outflows from San Francisco are also slowing. A Redfin report reveals far fewer homebuyers are leaving the Bay Area, and life there is returning to pre-pandemic normals. The Bay Area net outflow of homebuyers in the fourth quarter of 2023 was down 13 percent year over year and by a factor of two from the pandemic peak of September 2021.

The Bay Area’s slowing net migration outflow is partially due to local residents staying put. When the pandemic was at its worst, homebuyers left in favor of more affordable areas like Austin, Texas, and Sacramento. This was especially true for remote tech workers. That’s not happening as much lately, primarily because tech companies like Apple have called workers back to the office. The artificial intelligence tech boom is also drawing people back to the Bay Area. Artificial intelligence is causing a new tech revival in San Francisco as firms like OpenAI expand their office footprints in the city. OpenAI Chief Executive Sam Altman’s primary residence is in the city’s Russian Hill neighborhood. “The reality is that the brainpower is here,” said Max Gazor, a general partner at the venture firm CRV.

San Francisco still faces challenges like many cities confronted by the theorized urban doom loop. The Bay Area has a dire homelessness and housing crisis. And among the 14 largest U.S. office markets, San Francisco’s has gone from the strongest to the weakest. The city’s office vacancy rate was 35.9 percent as of the fourth quarter of 2023, a record high. More than 74 percent of San Francisco’s downtown land area is devoted to offices, a big reason why issues have plagued the city’s downtown more than most. In the post-pandemic hybrid work world, cities with more economically diverse downtowns have fared better than those saturated with offices.

Does this mean a doom loop will swallow up San Francisco? Not necessarily. San Francisco may not inevitably fall into a vicious cycle of deterioration because they’re not innocent bystanders to the causes. City, state, and federal policies can stop the bleeding, and San Francisco officials are already doing this. One solution to injecting life into San Francisco’s downtown is office-to-residential conversions. Converting vacant offices to housing is a crucial part of the city’s roadmap for the future. The city passed legislation last year to simplify the approval process for adaptive reuse projects. Adding more culture and entertainment buildings downtown and attracting institutions like universities and hospitals could also drive investment. The goal is to diversify San Francisco’s downtown to preserve its role as the region’s largest employment center while also helping it become more resilient in the long term. The new building use generates more tax revenues than empty office buildings.

In New York City, similar plans are unfolding. A program to convert vacant NYC office buildings into housing is already underway. Forty-six buildings are enrolled in the city’s Office Conversion Accelerator, which began in August. Converting empty office buildings into housing is easier said than done. It’s a complex and expensive process, and city building restrictions often slow things down. But cities across the country, such as New York, are removing red tape and, in some cases, even providing tax incentives to speed up the process.

The pandemic is in the rear-view mirror, but the aftershocks of it on major cities are still being felt. The most persistent economic legacy of the pandemic is hybrid work, which appears here to stay. The doom loop theory has always centered around hybrid work’s impact on the office and, subsequently, how that affects cities. While headlines of doom generate clicks, they fail to recognize how resilient these cities are. Cities have no choice but to evolve post-pandemic, and the drop in tax revenues from empty offices provides a tough challenge. But cities like New York have faced more formidable challenges before and emerged just as vibrantly. With the right policy decisions, the vicious cycle of an urban doom loop is not inevitable by any means.

Last year proved to be a cybersecurity wake-up call for the real estate industry. An attack on MLS system provider Rappatoni caused national outages in August. Fidelity National Financial, the nation’s largest title services provider, was hacked. First American Financial, the second-largest provider of title insurance, was hit by an attack that stalled closings for over a week. If we’re keeping score, the hackers won in 2023.

Due to last year’s high-profile attacks, real estate’s vulnerabilities

Last year proved to be a cybersecurity wake-up call for the real estate industry. An attack on MLS system provider Rappatoni caused national outages in August. Fidelity National Financial, the nation’s largest title services provider, was hacked. First American Financial, the second-largest provider of title insurance, was hit by an attack that stalled closings for over a week. If we’re keeping score, the hackers won in 2023.

Due to last year’s high-profile attacks, real estate’s vulnerabilities to cybercrime have been more in the spotlight. But what complicates the industry’s attempts to shore up defenses is a cybersecurity labor shortage that’s worsening every year. The shortage affects all industries, but real estate firms may be especially on notice after 2023’s cascade of lousy cybersecurity news.

Seventy-one percent of cybersecurity professionals worldwide said their companies have been impacted by a skills shortage, according to a survey research firm Enterprise Strategy Group and cybersecurity trade organization Information Systems Security Association. The shortage has increased workloads for cybersecurity teams, left jobs unfilled, and caused high burnout rates. Fifty-four percent of those surveyed said the shortage has worsened over the past few years.

A lack of qualified cybersecurity professionals is bad news for a real estate industry facing growing cyber risks. The post-pandemic shift to remote work is partially to blame for the exponential expansion of the threat landscape. Cyberattacks across all sectors have increased. The real estate industry’s shift to digital technologies also exposes it more. The increase in intelligent building systems and Internet of Things technologies makes matters worse.

Part of the reason for the cybersecurity labor shortage is an intense demand for talent. Over the past decade, a 115 percent increase in the U.S. cybersecurity workforce hasn’t kept pace with the 885 percent spike in job openings for these workers, according to labor analytics firm Lightcast. This supply-and-demand mismatch has created challenges for all employers when scaling their cybersecurity teams. 

Another problem may be a lack of interest from today’s college graduates and an insufficient curriculum in STEM studies. Many U.S. students lack adequate skills in math and science, which keeps them from qualifying for advanced programs that could put them on track for a cybersecurity career. When candidates are qualified, they demand high salaries and jump to better-paying jobs more often.

Addressing the cybersecurity labor shortage may include hiring candidates who don’t check off every box on the application but have the potential to learn on the job. Some employers are even removing degree requirements to cast a wider net. At the federal level, the Office of Personnel Management will introduce legislation that calls for skills-based hiring for cybersecurity positions based on competencies, not credentials. 

Removing degree requirements could lower the barrier to entry, but it won’t solve every issue. Research from Gartner shows that most companies use anywhere from 45 to 75 different security tools. Each tool produces thousands, if not millions, of security alerts daily. These alerts must be analyzed by workers with the experience to make the right decisions at the right time and act when necessary. Bringing less experienced cybersecurity employees on board may help in the short term, but it may not be the best strategy as cyber threats become increasingly more complex.

Better compensation to attract coveted talent helps fill cybersecurity positions, but that may not be a silver bullet, either. Entry-level jobs may only begin around $50,000, but salaries reach six figures quickly as employees move up the ladder. In an employee’s market, whoever is willing to pay more wins. It may be tough to close the gaps if a real estate firm needs to fill multiple senior positions simultaneously but is on a budget.

One promising solution for the cybersecurity skills shortage is generative artificial intelligence. AI helps aggregate security data, recommends the next steps to make enhancements, and creates automated actions if configured correctly. In addition, Gen AI can aid security analysts in areas like alert triage and security investigations. It could also be used to train cybersecurity analysts, especially entry-level ones. AI could act as a virtual cybersecurity mentor and help as a virtual team member when there’s a personnel shortage.

AI is not being widely deployed in this way for cybersecurity at the moment, and some remain skeptical. Gen AI and large language models are known to have bias and are still in their infancy. Verifying the information is challenging, especially with something as critical as cybersecurity. However, the use of AI in this way might change over the next 12 to 18 months as AI systems mature.

Other solutions to address the cybersecurity labor shortage are more fundamental. Expanding internship opportunities provide recent graduates with real-world experience and can establish a pipeline for future hires. More focus could also be geared toward upskilling existing workers. Real estate firms can invest in professional development to help existing cybersecurity workers stay current with evolving technologies. Opportunities for certifications and advancements help retain employees who may otherwise flee.

How universities are responding to the labor shortage is outside the locus of a real estate firm’s control, but it’s something to keep an eye on. Higher education has slowly evolved with new cybersecurity curricula, and there’s a shortage of university professors willing and able to teach it. Many qualified cybersecurity professionals have traditionally preferred full-time work in the private sector rather than an academic career due to the competitive increases in compensation over the past decade. There’s hope this is changing. Some cybersecurity professionals are finding that teaching, even part-time, improves their reputation and leads to better career opportunities.

The real estate industry will likely see more high-profile cyber attacks in 2024. Attacks are becoming more sophisticated, requiring real estate firms to stay protected with a talented cybersecurity staff. With the cybersecurity skills gap worsening, real estate firms may need to get creative in addressing staffing needs. The virtual assistance of AI for cybersecurity is a promising solution, though not mainstream yet. Warnings about real estate’s cybersecurity vulnerabilities have come to fruition, so the skills gap for these professionals is becoming a pressing real estate problem, too.

Last summer, the global consultancy firm McKinsey made headlines when it released a report that estimated office owners in nine cities around the globe were at risk of losing $800 billion in valuation losses on their properties over the next several years. Among the cities named, three were stateside: New York, San Francisco, and Houston. The firm estimated that overall, the total value of office space in the nine cities was expected to decline 26 percent. 

The McKinsey report wasn’t the first,

Last summer, the global consultancy firm McKinsey made headlines when it released a report that estimated office owners in nine cities around the globe were at risk of losing $800 billion in valuation losses on their properties over the next several years. Among the cities named, three were stateside: New York, San Francisco, and Houston. The firm estimated that overall, the total value of office space in the nine cities was expected to decline 26 percent. 

The McKinsey report wasn’t the first, and it won’t be the last study to project drastic numbers on potential valuation losses due to pandemic aftereffects. Major office markets around the country are faced with the prospect of losing out on tens or even hundreds of millions in property tax revenue as annual property tax assessments begin to be released this year. It’s a hot-button issue that has led to lawsuits in Chicago, frustration in New York City, and fears in Washington, D.C. As the impact of the pandemic on the office sector continues to come into focus, property valuation figures may not always square with reality.

In the country’s largest office market, New York City, the annual tax assessment roll raised some eyebrows when it came out last month. Overall, it showed that valuations actually increased, albeit very slightly. The total market value of all properties in NYC for the fiscal year 2025 is $1.49 trillion, according to the report, equating to a 0.7 increase from fiscal year 2024. It’s a bit of a head-scratcher, given how last year saw several large office buildings in Manhattan sell at huge discounts. The Department of Finance (DOF), the agency that published the report, said the modest uptick in office building values was driven largely by the strength of trophy and Class A office space. “One positive indicator was a resurgence in construction and renovation spending after three years of decline,” said DOF Commissioner Preston Niblack. 

In Chicago, a proposed transfer tax change by lawmakers has been criticized by some who say it would drag down property values. Last November, Chicago’s city council approved Mayor Brandon Johnson’s proposal to raise the transfer tax rate on all property sales of $1 million and up. The proposed change would increase the rate to 2 percent for all sales between $1 million and $1.5 million and increase to 3 percent for sales over $1.5 million. The measure would also include a tax break for smaller transactions, with the rate decreasing to 0.6 percent for property sales less than $1 million. Now that it’s approved, the measure will go to voters as a referendum question during the upcoming March primary. The tax rate change was aimed at addressing homelessness, but the real estate industry has come out against the measure, saying it will hurt office property values. 

The Chicago chapter of the Building Owners and Managers Association (BOMA) filed a lawsuit against the Chicago Board of Election Commissioners to block the proposed tax rate question from being included in the March primary election ballot. Several organizations within the real estate industry are supporting the BOMA lawsuit, which hinges on claims that the referendum questions are not being presented fairly. If the proposal passes, BOMA says the ripple effects of the increased taxes would be felt all across the city by homeowners, small businesses, and renters and would impede the development of more affordable housing. “At a time when commercial real estate markets are in immense turmoil, homeowners and neighborhoods throughout the city would be hit hard,” a BOMA statement said.

And in Washington, D.C., one of the office markets that has struggled the most since the pandemic, this year’s highly anticipated annual financial report showed a drastic drop in property values. The District’s Annual Comprehensive Financial Report showed that total assessed commercial property values fell $1.5 billion between 2022 and 2023, and tax revenue dropped 40 percent year-over-year. In the past two years, D.C. property values have dropped by nearly $11 billion. That equates to more than $200 million in tax revenue the District lost out on between 2021 and 2023. The worrisome numbers underscore the priority D.C. lawmakers have put on converting offices to residential and revitalizing depressed areas of the city. “We know that investing in our downtown is absolutely essential to fill our office vacancies and revive our commercial property tax revenue,” said D.C. Councilmember Brooke Pinto.

For cities, the most immediate impact of decreasing property valuations is less tax revenue, which means less money for the city budget. And that could mean cuts to crucial programs, agencies, transit systems, and needed infrastructure updates, just to name a few. In New York City, this year’s tax assessment roll was surprising to many people, who felt it wasn’t accurately reflecting reality. “I think everyone in the industry was really shocked by it because all you have to do is open a newspaper and see that office values have plummeted,” said Steve Thompson, a partner with the property tax consultant group at Ryan, a global tax firm specializing in business taxes. Thompson said the disconnect is happening for a few reasons, one of which is that the values set by the city are based on income and expense data from 2022. Another is that there were limited transactions for the city to draw on when making the valuations. Using data from CoStar, Thompson found that between early January 2023 and early January 2024, fewer than 30 office buildings more than 50,000 square feet in size changed hands, which made for an extremely small sample size out of the 6,800 total office parcels in NYC. “That’s a problem for the DOF; they use that sales data to extract cap rates. And with very limited data points, they didn’t have a lot to go off of,” Thompson said.

Building valuations not only play an influential role in owners’ annual tax burdens, strategic decisions, and overall financial well-being, but they can also play an important role for building owners on the leasing side. For potential tenants looking at an office building, given the choice between two similar properties—in the same neighborhood, the same age, and rent prices—a major differentiating factor could be the property tax rate. A tenant would likely choose the building with fewer property taxes (which could be passed through to the tenant), so they are paying less to occupy the same amount of space. “It can be a marketing tool for marketing buildings to tenants,” Thompson said of lower property taxes.

Many in the commercial real estate industry looked to 2024 as the year that the office market would rebound. A big reason for that positive outlook was the expected easing of interest rate hikes by the Fed. So far, rates have not been raised, but they have also not been lowered. But we’re also in a time when $1.5 trillion in commercial real estate debt is coming due by the end of 2025, further complicating the outlook for office markets. Some of the country’s largest cities are contending with property tax assessments that aren’t reflecting the market accurately, while others are looking to change tax rates in a way that could potentially cause more problems for property owners. The systems in place for valuing buildings are imperfect in many cities, and until lawmakers figure out a way to fix them, it’s looking like more clouds ahead for the office market. 

As the world’s digital infrastructure continues to expand, data centers can’t be built fast enough. The pandemic-induced shift to remote work, online education, video streaming, and e-commerce have driven both demand for data centers and their yields compared to more traditional real estate classes. Even with persistent supply chain backlogs and a looming recession, the compound growth annual rate for the data center market is expected to increase by 9.6 percent from now until 2030, ultimately reaching

As the world’s digital infrastructure continues to expand, data centers can’t be built fast enough. The pandemic-induced shift to remote work, online education, video streaming, and e-commerce have driven both demand for data centers and their yields compared to more traditional real estate classes. Even with persistent supply chain backlogs and a looming recession, the compound growth annual rate for the data center market is expected to increase by 9.6 percent from now until 2030, ultimately reaching an overall value of $418 billion. While that’s great news for a thriving internet connection, it’s not so stellar for the environment. 

Data centers are notorious energy gobblers, and their meteoric rise as an asset class stands in diametric opposition to the many decarbonization efforts being laid out by both corporations and policymakers. Pressure is mounting for the real estate industry to move the needle on climate progress, and the need to tamp down energy consumption in data centers is no exception. In recent years, some strategies have emerged to mitigate the whale-sized bite data centers take out of the global energy supply, but the complex energy ecosystem that data centers require to function properly poses a huge sustainability challenge.

Heatwave

Data centers consume a lot of electricity due to the high density of power-hungry hardware, from servers to storage devices to networking equipment. Thanks to the laws of thermodynamics, every joule of energy passed through computer equipment eventually turns into heat, as anyone who’s ever put a personal computer on their lap can testify. Now at most, a laptop may get uncomfortably warm when in use, but a hallway full of servers can emit enough heat to cause significant engineering challenges. Most data centers pipe the excess heat into the air, which contributes to the heat island effect that makes the surrounding neighborhood even hotter.

Keeping data centers cool enough not to melt the equipment (or give the people walking inside the building a heatstroke) requires some serious cooling power. These cooling systems can take many forms, such as air conditioning units, fans, and liquid cooling systems. Those necessary cooling systems require even more energy to keep the data center running. In smaller data centers, cooling can require up to 50 percent of the electricity consumed. But if so much energy is spent keeping data centers cool, what if there was a way to utilize the excess heat and keep other parts of the building warm?

Mitigating heat generation is a big challenge when it comes to meeting urgent net-zero targets, so some entities are getting creative with the waste heat emitted from data centers by using it to offset energy use elsewhere. This technique not only lowers expenses and carbon emissions but also creates a symbiotic energy ecosystem within the building where the data centers are kept cool, and other parts of the building are kept warm. One of the oldest examples of this can be found at Syracuse University, where excess heat from the university’s data center has provided free heat to a nearby office building since 2010. At the beginning of this year, another university was warmed by nearby servers. Technological University Dublin was one of the first users (including the adjoining South Dublin County Council building) of a new district heating system fueled by a neighboring Amazon data center that went into service in the middle of December. 

Using data centers to warm buildings isn’t a far-fetched idea in the slightest because entire cities in both Norway and Sweden have turned to data centers to keep their residents warm, showing that recycled heat from data centers can be used sustainably at a large scale. It’s an inspiring display for the rest of the world of how real estate can make an environmental win-win, but it also showcases the difficulty of implementing that system in a place that doesn’t have the necessary infrastructure to support it. 

Lyseparken, the town in Norway that will receive all of its heat from a central data center, is being built entirely from scratch, and though it’s been in development for several years now, it may take a long time for construction to finish completely. In the case of the Swedish city of Stockholm, the infrastructure for heat recycling was already in place when the city’s heating system was first built nearly seven decades ago. While that doesn’t mean that cities can’t restructure themselves to allow piping-hot data centers to provide heat for their inhabitants, it does mean that doing so is likely an expensive and cumbersome ordeal. Still, like other green initiatives that aim to transform buildings from energy hogs to high performance, these kinds of ambitious efforts take time, but they will ultimately pay off in the end.

Gone fishing

There’s another way data centers can be used sustainably without needing to overhaul a city’s framework, and it’s making a splash. In order to keep data centers cool without needing to extract extra energy, Microsoft decided to throw one of theirs into the ocean. 

Microsoft has been experimenting with the idea of underwater data centers since one staffer suggested the idea in 2014. By 2020, the tech juggernaut gave the experimental data center initiative (called Project Natick) an investment of $25 million. The goal was to offer coastal towns lightning-fast cloud services while keeping energy consumption low. In order to achieve this, Microsoft submerged data centers near coastal towns to test its solutions. In doing so, data wouldn’t have to travel as far as it would on land, resulting in a faster and more fluid internet connection. Given that more than half of the world’s population resides less than 120 miles from the coast, this strategy had a lot going for it.

Microsoft posited that putting a data center in a sealed container at the bottom of the ocean floor would actually boost the data center’s performance, reliability, and, of course, lower energy consumption. The ocean water absorbs the heat from the data center, allowing the computer processors to maintain a constant temperature without drawing a lot of power to power the cooling equipment. The number of computer hardware problems is further decreased since the entire server is maintained at a constant temperature, preventing uneven expansion and contraction.

Microsoft discovered that its data center was significantly more dependable than an identical data center maintained on land to control the experiment. It used a lot less electricity and had a much smaller negative environmental effect. It was also much quicker to implement because they didn’t have to buy the land or building space, construct everything that a normal data center has, or do any of those things. 

Project Natick’s underwater data center was pulled from the ocean bottom at the conclusion of the experiment in the summer of 2020, but since then, Microsoft has been aiming to build a second undersea data center along the North Sea. Microsoft’s continued interest in underwater data centers not only affirms that Project Natick was a success but it also offers a glimpse into how data centers could evolve into a more provocative asset class. 

Data centers are certainly having a moment in the investor spotlight right now, but traditional data centers are hardly energy-efficient, which is costly for both the environment and operational management. New, ambitious strategies to usurp data centers’ power guzzle are already underway. Soon, data centers may generate positive returns on energy and investment.

When CBRE announced in 2020 it was moving its global headquarters from Los Angeles to Dallas, it merely formalized how the company had been operating for the previous eight years. CBRE has a long history in California, but Dallas had been its de facto HQ for a while. The North Texas city was its largest operating center and home to many senior executives, including CEO Bob Sulentic.

CBRE’s HQ move to Dallas was also part of the rising tide of corporate relocations to the Lone Star State. Texas now

When CBRE announced in 2020 it was moving its global headquarters from Los Angeles to Dallas, it merely formalized how the company had been operating for the previous eight years. CBRE has a long history in California, but Dallas had been its de facto HQ for a while. The North Texas city was its largest operating center and home to many senior executives, including CEO Bob Sulentic.

CBRE’s HQ move to Dallas was also part of the rising tide of corporate relocations to the Lone Star State. Texas now leads the nation in the number of Fortune 500 firms headquartered there, with as many as 53 such companies calling the state home. Sixty-two companies relocated their HQs to Texas in 2021, and many came from California (25, to be exact). The biggest California defection in terms of media coverage was Tesla, but CBRE’s move the prior year also gained considerable coverage, at least in the real estate world.

CBRE vowed in 2021 to create about 1,000 new North Texas jobs and invest up to $42 million into its Dallas HQ and a new operations center in nearby Richardson. At the time, money was flowing into commercial real estate, and Texas officials were quick to pat themselves on the back. Governor Greg Abbot said CBRE’s decision to invest more heavily in Texas proved his state’s status as “the national model for economic prosperity.” Other officials pointed to the Dallas-Fort Worth region’s explosive commercial real estate market, which had more commercial deals than any major metro area in 2020. 

Part of CBRE planting deeper roots in Texas are plans for a new 27-story, 750,000-square-foot office tower in Uptown Dallas with retail on the ground floor that would serve as their corporate HQ. But times have changed since CBRE announced the plans, and high-interest rates and inflation have construction stalled. Construction of the tower was set to commence in February 2022, but the city of Dallas hasn’t received an update on the status. Triumphant statements from Texas officials about the state’s economic superiority have slowed, and CBRE is mum on details about the new HQ. The lack of progress is emblematic of a commercial real estate market that’s suddenly suffering.

Incentives slipping away

An obvious sign the project is behind schedule is that a restaurant called Truckluck’s is still standing. The upscale seafood joint is at 2401 McKinney Avenue, where CBRE’s office tower plans to be, and not only is the restaurant open, the owners say the location has no shutdown date yet. CBRE and Trammel Crow, the company’s development arm, have not commented on the delays, but there are several reasons why it’s likely happening. 

For one, construction costs have escalated. Materials costs have tempered somewhat recently, but prices for certain products remain volatile, including cement and diesel fuel. The price volatility makes it challenging for contractors to plan out projects. A continuing labor shortage and rising wages are also plaguing contractors. CBRE is facing its own challenges, too. The brokerage laid off an unknown number of employees last fall and plans to cut $400 million in spending by mid-2023, most of which is associated with workforce reductions.

The proposed new CBRE HQ had an estimated price tag of $200 million when the state permit was filed in July 2021, but that number is likely higher now. Trammel Crow first began collecting construction bids in the summer of 2020. The developer said later that it had the project’s financing in place, but a couple of years later, the financing is likely inadequate because of higher materials and labor costs. Projects like this were getting done circa 2020, but not anymore. Some Dallas developers say it may be at least a couple of years before big deals like this can get done again because of the market uncertainty.

The biggest problem with the HQ construction delays is they could jeopardize economic incentives CBRE was expected to receive. CBRE signed a formal agreement with the city of Dallas in 2021 for the project that would help the brokerage earn an estimated $4 million in incentives for meeting specific targets. One target included CBRE leasing at least 200,000 square feet for the global headquarters at the new office tower. The agreement specified that the project must be completed by the end of 2024, and CBRE must take occupancy of the building no later than the end of 2025. It’s highly questionable if CBRE can meet those goals at this point. The construction hasn’t started yet, and it could take two-and-a-half to three years to finish.

The brokerage could negotiate changes and push back the deadlines to qualify for the incentives or possibly forgo the incentives altogether. The uncertain economic conditions could give CBRE some leverage in re-negotiating the incentives with the city and state. For example, the deal with Dallas has a force majeure clause, and these “act of God” provisions have become more common since the pandemic. Before the pandemic, an act of God was usually tied to war, natural disaster, or another circumstance like that to free landlords or tenants from liability in leases. 

CBRE could cite the pandemic and challenging economic conditions in the force majeure clause to extend deadlines with the city. Other companies have done this recently, some right in the Dallas area. The city of Plano, a suburb of Dallas, recently re-negotiated an incentive agreement with JPMorgan dating back to 2016 because of the company’s remote work policy. JPMorgan received about $5 million in incentives from Plano, where it has an office campus of 1.5 million square feet and nearly 4,500 employees.

Failure to launch

CBRE’s incentive agreement with Dallas didn’t specify where it planned to build the new HQ. The company’s current headquarters office is at 2100 McKinney Avenue, and the proposed new development is just one block north of that. The neighborhood (Uptown Dallas) is one of the city’s most coveted places for office space. JLL, Newmark, Avison Young, and Cushman & Wakefield all have offices there. McKinney Avenue is known to have the city’s most expensive office rent per square foot.

Dallas maintained its position as one of the best U.S. real estate markets in 2022, but the economic headwinds have affected it like everywhere else. Last year saw a slower pace of corporate headquarter relocations and an increase in flexible office space leasing. Office-to-residential conversions in the Dallas central business district led to the city recording a negative net office absorption rate of 1.9 million square feet last year and a year-over-year increase in total vacancy by 3.5 percent. JLL reports that the construction pipeline has been strong in Dallas, but development is expected to slow because of capital constraints and rising construction costs.

The softening of the office market in Dallas is one reason why CBRE’s planned HQ is failing to launch, but not all projects are being shelved. Wells Fargo’s office campus in the Dallas area broke ground in January 2023, and Goldman Sachs’ three-building office project in Uptown was expected to start in February. Wells Fargo’s 22-acre campus will cost $400 million and will receive $31 million in incentives from the city of Irving. Goldman Sachs’ $480 million office hub is expected to be completed in 2026, housing 5,000 employees. Goldman may receive $18 million in incentives for the project. The Wells Fargo and Goldman Sachs projects seem on track for now, but they could always face the same fate as CBRE’s HQ as the toll of higher interest rates continues.

CBRE appears more than willing to ramp up its presence in North Texas despite the delays in the new HQ construction. The brokerage had more than 3,000 North Texas employees in 2021, a 70 percent increase over the past decade. CBRE is like many companies that have relocated to the Lone Star State recently for its favorable business environment. But even a business landscape as favorable as Texas isn’t immune to the shocks the economy has faced. The fact that the world’s biggest commercial real estate brokerage is facing difficulties building a new corporate headquarters isn’t good news for the industry. It’s emblematic of the struggles many developers are facing now, and it’s a further omen that 2023 could be a lean year for the commercial real estate industry.

The fight for talent at the top of the commercial real estate industry is a fierce and sometimes litigious battle. Turnover can be high among brokers as they switch from firm to firm in a game of musical chairs. One broker once told me that all the top commercial real estate firms are pretty much the same, which gave me the impression that most brokers think of themselves as essentially free agents that use the company brand while continuing to climb higher.

The one thing that has helped brokerages

The fight for talent at the top of the commercial real estate industry is a fierce and sometimes litigious battle. Turnover can be high among brokers as they switch from firm to firm in a game of musical chairs. One broker once told me that all the top commercial real estate firms are pretty much the same, which gave me the impression that most brokers think of themselves as essentially free agents that use the company brand while continuing to climb higher.

The one thing that has helped brokerages like JLL and CBRE in this competitive environment is non-compete clauses, which restrict employees from benefitting rival brokerages by switching jobs, usually for a defined period or within a specific geographic location. When brokers do change jobs, legal battles sometimes ensue. For example, Cushman & Wakefield sued two former capital markets brokers last October after they left for JLL. Cushman claimed a breach of a five-year employment contract signed by Mike McDonald and Jonathan Napper in October 2018. Cushman was granted a temporary restraining order against the employees and is seeking monetary relief of up to $1 million.

The brokers’ contracts came with non-compete clauses, and Cushman & Wakefield claims they took five other brokers and two executives to JLL with them, along with confidential business information and several clients. It was a big L for Cushman, who claimed they suffered several canceled deals because of the move. McDonald and Napper have worked together for eight years and sold more than $5 billion in real estate in Atlanta.

The lawsuit over the brokers’ alleged non-compete clause breach is still playing out, but it’s far from the only recent example in commercial real estate. Newmark sued three former multifamily sales brokers in 2021 who left for CBRE. CBRE sued two former brokers in 2018 who switched to rival firm Hughes Marino. That case was later settled, and the brokers agreed to cover CBRE’s attorney fees. WeWork was forced to release 1,400 workers from overly broad non-competes and to reduce restrictions on another 1,800 employees after New York, and Illinois attorneys general sued the company in 2018.

These lawsuits are so common because non-compete agreements are the norm throughout the business world and in commercial real estate in particular. It’s estimated that between 40 to 50 million Americans are covered by a non-compete, about one in five workers. A proposed Federal Trade Commission rule would change this, banning non-competes across the board in employment contracts, which could create a tremendous wave of change. Real estate companies rely on the clauses to retain top producers and protect client rolls and trade secrets. The FTC’s rule would potentially make changing jobs to a company’s rivals much easier. It’s hard to overstate how impactful the ban would be, and it undoubtedly has real estate brokerages scrambling.

An uneven playing field?

The FTC’s proposal is still months from going into effect. The agency is seeking comments through March 10^th as part of the rulemaking process, and it could still adjust the rule before releasing a final version. The FTC estimates it would help 30 million Americans have better career opportunities and increase overall wages by about $300 billion annually. The rule would also be retroactive, meaning existing non-compete agreements would be canceled, and companies would have to inform current and former workers they’ve been voided.

Non-compete clauses typically restrict former employees from accepting a job with a competitor of their former company for a specific period. These clauses differ from non-solicits, which prohibit former employees from taking customers or prospective customers to a new job. Non-competes are also distinct from non-poach clauses and confidentiality agreements. Non-poach clauses prohibit soliciting a company’s employees for hire, or in other words, a broker taking a team of brokers with him. Confidentiality agreements protect a company’s information and trade secrets. FTC’s proposed rule only addresses non-compete clauses, which state law currently governs. The rule would make most non-compete clauses unenforceable, a serious change.

Non-competes didn’t used to be as popular in commercial real estate, but they’ve become pervasive in recent decades. They were originally intended to protect trade secrets, but some argue there are less intrusive ways to achieve this, such as non-disclosure agreements. Using non-competes sometimes results in an uneven playing field for employees, especially lower-level workers who may not even be aware they signed one until they take a new job.

Some real estate firms have all workers sign non-competes, though they are usually more onerous for executives. For commercial brokers, many think of the clauses as a nuisance but accept them as the industry norm. Your clients become the company’s clients, and if you take another job, you can’t take your clients with you in most cases. This can be frustrating, as brokers do most of the work to secure the deals and develop the relationships. When brokers start a new job, they essentially must start from scratch. The periods covered in the agreements can also be burdensome for employees. If leaving for a rival firm, brokers may have to wait up to one year to work again, which is a severe financial challenge for a mid-level employee who’s not wealthy.

Many executives typically get around strict non-competes by taking “garden leave,” not working in the industry, and/or waiting out the obligation before starting with a new, rival firm. Lower-level workers don’t have the same luxury in most cases. Executives may have stricter clauses, but they can also typically afford a good lawyer to negotiate the agreements. The effects of the clauses could be some workers leaving the industry altogether instead of risking legal trouble by switching to a rival real estate firm. Some states, such as California, don’t enforce non-compete clauses. But some employers will still have workers sign them, which can psychologically keep employees in their place.

Into the great unknown

The ban’s effect on real estate employees has been likened to “the handcuffs being taken off.” It would undoubtedly make it easier for brokers to jump ship, but the more big-picture effects of the ban are largely unknown. The proposed ban would have significant downsides for companies, but there could also be some drawbacks for workers. Without non-competes, workers could leave for a direct competitor and take valuable information with them. Employers would likely rely on other restrictive clauses, such as confidentiality agreements, to protect business interests. But these agreements wouldn’t stop a former employee from working for a competitor and possibly bringing inside information with them.

A non-compete ban would obviously impact companies’ retention, but this could backfire on workers. Some companies may be less likely to invest as much in skilled employees, knowing they could depart easily. Another counterproductive effect could be the possibility of the ban driving wages down, despite what the FTC claims. Companies that don’t have to negotiate non-competes could negotiate more favorable terms elsewhere. Not having to pay workers for something of value in return for the restrictive clause could bring down compensation plans.

The proposed ban will undoubtedly face legal challenges, one of which may be coming soon. The U.S. Chamber of Commerce has already said it’s prepared to sue the FTC over the rule. The Chamber of Commerce is America’s most prominent business trade group and spent nearly $60 million lobbying lawmakers during the first three quarters of 2022. They and several other business groups will throw their weight around to get the rule shelved or at least watered down. The Chamber says the rule is “blatantly unlawful” and ignores state laws that already govern non-compete agreements.

A ban on non-competes would dramatically alter the business landscape in the U.S., though the exact effects are uncertain. It would seemingly be a win for workers like real estate brokers, enabling them to progress in their careers without fear of running afoul of a restrictive agreement. But the ban could also have counter-intuitive effects that will only be realized once it’s set into motion. There is likely some internal scrambling among top real estate companies right now over the FTC’s proposal as they figure out ways to fight it and maintain power. Banning non-competes could be like removing the handcuffs from top employees, and in an industry as competitive as real estate, it could make the jockeying for top talent even more fierce.

The reigning theory about the Generation Z labor force is that company culture and reputation matter the most. More and more, we hear that younger candidates for office jobs care so deeply about what company culture is like and what actions they are taking in arenas like environmental sustainability that it could ultimately sway their decision of whether or not to work at a company. It’s not just hearsay; countless studies and surveys have shown that culture and DEI efforts matter more to Gen Z than any

The reigning theory about the Generation Z labor force is that company culture and reputation matter the most. More and more, we hear that younger candidates for office jobs care so deeply about what company culture is like and what actions they are taking in arenas like environmental sustainability that it could ultimately sway their decision of whether or not to work at a company. It’s not just hearsay; countless studies and surveys have shown that culture and DEI efforts matter more to Gen Z than any other generation before them. Most major companies have gotten the memo and laid out transparent ESG and diversity goals. Faced with this landscape, and an ongoing labor shortage that is heating up the competition, some of the largest commercial real estate brokerage firms in the industry are expanding their recruiting efforts and trying new approaches and programs that cast a wide net to lure those from the soon-to-be largest generation ever.

Commercial real estate has not been immune to the labor shortage. Since 2021, the widespread problem has led to staffing headaches across countless industries. The latest job report released last month was overwhelmingly positive, with unemployment averages hitting a 53-year low. Despite this, labor market struggles are still being felt. Federal Reserve Chairman Jerome Powell said in a news conference at the time that the labor market was not only “extremely tight” but also “out of balance.” This past December, there were around 11 million job openings, nearly two for every available worker.  

This disparity has made those who are looking for jobs even more selective. With more opportunities than ever, job seekers are taking more time to look at all their options and are scrutinizing potential employers more closely. A recent study from the CREW (Commercial Real Estate Women) Network found that flexibility is hugely important to the youngest jobseekers–18 to 24-year-olds–and those over 55. The same report also found that 68 percent of workers would change jobs if their new employer was more transparent about pay transparency, even if the new job and salary were essentially the same as their current position. Another study from Deloitte revealed similar findings. “To win the hearts of Generation Z, companies and employers will need to highlight their efforts to be good global citizens,” researchers wrote in a recent Deloitte study on Gen Z and the workplace. More than just pledging support for sustainability or societal issues on social media, companies will need to show they are truly committed through actions, not just words. 

The younger generations are a hugely important part of the country’s workforce. Gen Z and Millennials make up close to half of the full-time workforce in the US, at 46 percent, according to the latest Gallup polls. Members of these generations expect certain things from their workplace, the most important being an employer that cares about their wellbeing. Next to that, a company’s ethics, transparency, and commitment to a diverse and inclusive workplace. “The thing about Gen Z’ers is they check their receipts, and they’re asking what type of resources they have in their office space,” said John H. Jones, a longtime real estate veteran and PropTech thought leader. He ticked off important aspects of an office environment like air filtration systems, energy efficiency, and recycling as common questions from younger job candidates about their potential workspace. 

At CBRE, the world’s largest commercial real estate brokerage firm, recruiters are looking at candidates outside the usual places. Chelsea Cutler, a Senior Managing Director in recruiting, onboarding, and training/development in the firm’s Capital Markets division, connected with one of the largest school districts in Colorado to teach high schoolers about commercial real estate. Another effort by the brokerage firm involved something of a second act. Recruiters asked a dozen professional soccer players to participate in a 5-day, 40-hour workshop to learn the ins and outs of commercial real estate. “They’re still active in their careers, but know their careers are ending sooner or later and wanted to learn more about commercial real estate,” said Cutler, who described the athletes as “wonderful recruits” who are methodical, hardworking, and great at collaboration. “If you find people with the right drive for CRE, they are perfect candidates,” she said. A soccer union where the players are members looked at the partnership as an externship to help players explore post-career paths. Afterward, many of the players wrote emails to Cutler thanking the firm for the opportunity and respecting that they had more to offer than physical ability.

Not only is Gen Z expected to be the most populous generation in history, they are also the most diverse. Pew Research has found that 48 percent of the generation identifies as non-white, and that’s something commercial real estate firms are taking to heart. Giselle Battley is the D&I Director in Strategic Partnerships with JLL. One of the things her firm has honed in on while researching younger generations is how big of a role tech plays in their daily lives. Now, the firm is using tech to help speed up its recruiting and hiring process. Candidates are sent a link to a video-on-demand interview, recruiters then watch and rate the potential candidates, and those who are a good match are then put in front of managers quickly. Notably, the company removed assessments that were traditionally part of the application process. “Gen Z isn’t big on standardized testing,” Battley said. “Even Harvard has removed things like standardized testing.” She added that data has shown that they have first movers advantage by keeping the process shorter, simpler, and capped at no more than three interviews. 

The efforts that have been made to understand Gen Z, whether through surveys, research, or otherwise, will certainly come in handy for recruiters and companies looking at candidates. But the bigger question is, especially when it comes to an industry that needs to be faster to adapt to new technology and diversify, does Gen Z want to work in commercial real estate? 

Jones says yes. “Commercial real estate is an exciting industry. It’s reflective of the American Dream,” he said. “You start with one investment, and that grows.” Jones admitted there are also mainstream perspectives of the real estate industry via splashy reality shows like Selling Sunset and Million Dollar Listing that give the impression that the real estate industry is only about the buying and selling of multi-million dollar residential properties. But while social media can give skewed views of real estate, it can also help educate millions of young people about the realities of the industry and the jobs within it. Some of the largest commercial real estate firms are using social media for research, and there are a growing number of commercial real estate influencers on Instagram and TikTok educating their audiences on industry concepts and giving a peek at what their job is like on a daily basis.

Today’s job market numbers are up, but an imbalance between openings and the number of workers available to fill them persists in many industries, including commercial real estate. As the competition heats up for talent among commercial real estate brokerages, recruiters and development executives are coming up with new ways to find talent. Sometimes that means looking outside the industry altogether or even recruiting at a high school level. While it may still be a while until the job market begins to stabilize, the new avenues that have opened up and new efforts made for recruiting due to the labor market turmoil may become new standards for how firms find talent. And with diversity and inclusion at the heart of a lot of these efforts, it could be just what commercial real estate needs.

Since its founding in 1998, RealPage has grown into a formidable real estate data analytics and software company. It was acquired in 2020 by private equity firm Thomas Bravo and was valued at approximately $10.2 billion. RealPage then acquired its largest competitor in 2017, Lease Rent Options, for $300 million. The company made other acquisitions that year, including the apartment market data provider Axiometrics and On-Site Manager, Inc., a leasing and marketing platform firm. Overall, RealPage has acquired

Since its founding in 1998, RealPage has grown into a formidable real estate data analytics and software company. It was acquired in 2020 by private equity firm Thomas Bravo and was valued at approximately $10.2 billion. RealPage then acquired its largest competitor in 2017, Lease Rent Options, for $300 million. The company made other acquisitions that year, including the apartment market data provider Axiometrics and On-Site Manager, Inc., a leasing and marketing platform firm. Overall, RealPage has acquired 10 companies since 2016, enabling it to super-power its software with increasing streams of data and create a larger market share for the platform.

RealPage’s story is one of PropTech’s successes. Company executives often bragged about the firm’s influence in the multifamily industry during the high times of its rapid growth. The company has led several summits where some of the country’s largest corporate landlords mingled. One such summit is their annual RealWorld conference, where executives from companies like Cushman & Wakefield, Greystar, and Lincoln Property Co. served on subcommittees.

One of RealPage’s most popular software offerings has been YieldStar, a revenue management service that provides rental pricing data and suggests prices to landlords based on varying factors. During a 2017 earnings call, then-CEO Steve Winn boasted that a property company managing more than 40,000 apartment units once discovered it could make more money by operating at a lower occupancy level. Winn said this “would have made management uncomfortable before” if not for the insights gleaned from YieldStar.

This software is now part of the assorted allegations in the legal quagmire RealPage finds itself in. RealPage has drawn the attention of antitrust regulators, and several class-action lawsuits have been filed against it since a ProPublica exposé was published in October. RealPage has been vocally proud of YieldStar’s effectiveness in driving rent increases in the past. One of the lawsuits alleges there is a marketing video where a RealPage executive takes credit for the spike in rental prices in recent years. It’s also alleged that Jeffrey Roper, the architect of YieldStar, stated the software was designed to sidestep agents who had “way too much empathy” and were hesitant to push rents higher. Now that the legal dogfight has begun, the company will be much more careful about what it says.

With lawsuits filed against it from all corners of the country and more probably on the way, RealPage is facing serious legal trouble. By most accounts, its YieldStar software has been wildly successful, but maybe it was too successful. Depending on how the various courts rule, the ruthless effectiveness of YieldStar in maximizing multifamily revenues may have actually been illegal.

What’s inside the black box?

RealPage has denied the allegations, and few people in the multifamily industry seem willing to talk to me about them. The company faces at least seven class-action lawsuits that have been filed since October 18^th, along with separate scrutiny from the Department of Justice and Federal Trade Commission. Some of the biggest names in multifamily real estate have also been implicated in the lawsuits, including Greystar, Lincoln Property Co., and Trammell Crow. One case filed in New York demands $5 million in damages and claims RealPage’s clients control 19 million of America’s overall 48.5 million rental units.

The crux of the suits is simple enough to understand: all the defendants are accused of colluding to artificially raise rents with the help of YieldStar. One complaint states YieldStar enabled landlords to set and keep rents artificially high and defy the fundamental dynamics of supply and demand. The lawsuits allege anti-competitiveness and violations of Section 1 of the Sherman Antitrust Act. One case also alleges violations of the Cartwright Act, which is essentially the California state version of the Sherman Act. The complaints say YieldStar shared otherwise private data between landlord clients and encouraged them to fix prices that eliminated competition in some rental markets. One lawsuit alleges sharing private, real-time rental pricing and supply data was a condition of using YieldStar. 

The ProPublica report examined five of the nation’s top 10 property managers as of 2020, and all of them used YieldStar in at least some buildings. Collectively, they controlled thousands of apartments in metro areas like Nashville, Seattle, Atlanta, and Denver. Rents in those markets for a standard two-bedroom apartment increased by 30 percent or more between 2014 and 2019. ProPublica revealed that in one neighborhood in Seattle, 10 property managers oversaw 70 percent of all apartments, and they all used YieldStar. Multifamily managers can reject the pricing suggestions that YieldStar offers, but former RealPage employees allege that as many as 90 percent of suggestions are adopted.

These allegations are damning but must, of course, be proven in court. The price-fixing was the biggest draw of YieldStar, according to many of the class-action complaints. A confidential witness in one of the complaints said he’d call the competition in the area, usually with a list of 10 people to contact. He’d ask what they were charging for rent, then change his prices on YieldStar. “It was price-fixing,” the witness said. “What else can you call it when you’re literally calling your competition and changing your rate based on what they say?”

According to the lawsuits, RealPage’s conferences were also places where landlords allegedly agreed on prices, often set by RealPage itself. An online User Group Forum had thousands of members that exchanged rental data and collaborated on setting prices. Exchanges of information between competitors, especially pricing information, are inherently suspect according to antitrust laws. When competitors set prices jointly instead of individually, they commit what’s known in legal terms as a “supreme evil of antitrust.” Whether price-fixing is done through online software or in a smoky room makes no difference.

Jonathan L. Rubin, a partner at MorginRubin LLP, said that many antitrust cases like this are lost because most business people know better than to leave a documented trail of collusion, so it can often be hard to prove. The Sherman Act has been around since 1890, and companies are wise to it. But RealPage executives’ enthusiasm for YieldStar in public statements in the past could be used against them. The fact that there are documented instances of landlords sharing price data on RealPage’s online User Forum may also not look good in court.

Another subtle issue in the cases against RealPage is the theory that third-party software could orchestrate collusion. “When a platform like this makes the rules, is that tantamount to an agreement of joint profit maximization?” Rubin asked. Complaints are still being filed against RealPage, and there will undoubtedly be appeals. These cases will take a while to litigate. Rubin told me not everything has been revealed about how YieldStar works and how collusion could’ve been achieved. As the cases are litigated, more details will come to light about what’s inside the black box that powers YieldStar.

If RealPage loses, the legal remedies would be monetary damages and injunctive relief. Damages can be hard to calculate in antitrust cases because courts need to estimate how much money was made or lost. In other words, how much money did the affected renters lose, and how much did landlords make because of YieldStar? However, the more important aspect in the case would be if there was injunctive relief, which would require RealPage to stop the business model of the YieldStar software or, at the very least, the types of data that are shared. The anti-trust lawsuits against RealPage could have chilling effects and make some landlords stop using YieldStar in fear of retaliation (many of them were named in the lawsuits as well). But most users of the software are probably thrilled at how it has helped them. “They’ll probably continue using it because it works so well,” Rubin told me.

It’s all about that algorithm

One of the most interesting aspects of the lawsuits is that they center not on a group of people willingly colluding on a price but on an algorithm. Problems with algorithmic pricing are well-known, and the first case involving price-setting software goes back to the 1980s. Most major U.S. airlines began sharing non-public pricing information back then, and between 1988 and 1992, the arrangements are reported to have cost consumers more than $1 billion. Eight airlines reached settlements or consent decrees with the feds by 1994, and they agreed to change what data was shared.

In 2017, the Department of Justice and the Federal Trade Commission released a white paper about algorithms and collusion. It cited the airlines’ case, but it wasn’t specific to any industry, and it rings eerily similar to the allegations against RealPage. The authors state that algorithmic pricing may sometimes help consumers, but it often leads to competitors unlawfully colluding through an intermediary to restrict output and fix prices.

What’s troubling for consumers is that humans are replaced with algorithms in pricing goods and services, removing empathy from transactions. RealPage’s YieldStar offers “suggestions” for rental prices, but if landlords can maximize revenue based on those suggestions, why would they not? Landlords using YieldStar have the final say, but there’s strong encouragement from software that collects an untold sum of data. The public debate about algorithmic price-setting has mainly involved airlines and now apartments, though hotels are reported to use it, too. But what if it was extended to even more necessities, such as food, medicine, tuition, and clothes? The fear is a market where machines control the price of everything, pushing the operators responsible for setting the prices for increased profit maximization without negotiation.

These questions are why the cases against RealPage will be watched so closely. It is a story about the multifamily industry and the explosive increase in rents, but it also transcends the concerns of one sector. RealPage built a successful, powerful company on data, but the fundamental core of one of its most popular products is on trial. The class action lawsuits they face are tough enough, but they have also drawn the scrutiny of separate federal investigations, which could prove even more damaging. The price of rent is an emotional issue at a time when housing advocates have become more vocal than ever. Rent control ordinances are cropping up nationwide, and the White House has even chimed in recently with its own proposals for protecting renters’ rights. More Americans are renters than at any point in the past 50 years, and the average household is rent-burdened, according to a recent Moody’s Analytics report.

As the economy has slowed, rent prices are finally moderating. Seventy-four percent of the 100 most expensive cities for rent posted one-bedroom median rents in January that were either down or flat compared to the previous month. But decelerating rent growth now doesn’t take away the huge increases in recent years, and ProPublica’s report was like dumping gasoline on the flames for angry housing advocates. The outcome of these lawsuits against RealPage will have outsized implications for the multifamily industry, and they could determine the future of algorithm price-setting beyond real estate. RealPage may be a PropTech success story, but depending on how these cases go, it could end up more as a cautionary tale.

Last fall, amid a chaotic time of tech layoffs, slumping office space demand, and continued interest rate hikes, data emerged that office occupiers were looking at shorter lease terms. It wasn’t an entirely new trend since the early days of the pandemic, the big question surrounding the future of the office was already leading many in the industry to think about scaling back lease terms. But nearly three years after the early days of the global health crisis, with average office occupancy still significantly

Last fall, amid a chaotic time of tech layoffs, slumping office space demand, and continued interest rate hikes, data emerged that office occupiers were looking at shorter lease terms. It wasn’t an entirely new trend since the early days of the pandemic, the big question surrounding the future of the office was already leading many in the industry to think about scaling back lease terms. But nearly three years after the early days of the global health crisis, with average office occupancy still significantly lower and a looming recession, office occupiers—especially larger corporate users—are looking to mitigate risks with shorter leases and more flex space. 

As vaccines began to roll out in the first half of 2021, a lot of occupiers began planning their return-to-office plans. While a lot of workplaces quickly returned back to the normal that existed before March 2020 (plus masks and some social distancing), many others around the country remained empty or nearly empty. A lot of workers simply did not want to go back to the office or had moved to another city or state and weren’t able to return. The backlash led to what has been called “The Great Resignation,” and companies looking to retain talent adjusted their plans to meet employee demands. In a JLL Future of Work survey that polled more than 1,000 corporate real estate leaders, 43 percent said they would bump up their investment in flex space over the next few years. The increase was attributed to the increase in hybrid work models, a flight-to-quality trend among occupiers, and companies looking to avoid locking into long-term leases. 

In the nation’s largest office market, New York City, in a lot of ways, things have gone back to normal. Average lease terms across new deals being completed returned to pre-pandemic numbers in 2022, according to data from CompStak. However, in New York and in most gateway markets around the country, tenants that do stay and renew their office leases are doing so at shorter lease lengths. “Anyone who is staying in place, it seems there’s a bit of hesitancy to sign for a longer-term renewal,” said CompStak’s Alie Baumann. 

Average Office Lease Terms – New York City

Average Office Lease Terms – San Francisco

While lease lengths are getting shorter for tenants renewing or extending in place, lease size is also decreasing. Smaller companies, used to working in a more collaborative setting, have been leading the return to the office, while larger companies that were already decentralized have been reducing their office footprints due to lower office utilization. Jessica Morin is CBRE’s Americas Head of Office Research and recently authored a report on the trend of larger occupiers leasing smaller spaces. The average lease size decreased by 18 percent in the first three quarters of 2022 compared to the pre-pandemic (2018/2019) average, according to the report, while the total volume of square footage was down 14 percent in the first three quarters of 2022 compared to 2018. With interest rates and inflation still high, Morin said she expects to see continued hesitancy of tenants to relocate due to high buildout costs, and that could impact overall leasing volume. 

Recent layoffs, notably in the tech world, are not boding well for the office market looking ahead. A report from CommericalEdge earlier this month foresees office-using employment growth falling as layoffs continue this year. The number of office sector jobs added every month averaged 117,000 per month between January 2021 and July 2022, but over the last five months, the number of office jobs added has only averaged 25,000 per month. Meanwhile, as the office market faces uncertainty, the demand for co-working space is expected to continue to grow. And there’s maybe no bigger market in the U.S. for flex space than in New York. In 2019, before the office market was radically changed by COVID-19, the amount of flex office space in New York was growing at a pace of 23 percent annually for nearly a decade, according to JLL. 

CBRE’s most recent occupier sentiment survey, which polled more than 185 corporate real estate executives with U.S. office portfolios, found that occupiers overwhelmingly are seeking to have flex office space, shared open space, and anything that supports a collaborative environment. More than half of the survey’s respondents said they expect flex office space to make up a significant part of their portfolio, a notable increase from 35 percent in the previous year’s survey. 

New York City’s largest office occupier, JPMorgan Chase, is gearing up to open its new headquarters at 270 Park Avenue, and flexibility is one of the keywords the company has been using to describe the 2.5 million-square-foot space. The banking giant expects to have half of its workers in the office full-time while 40 percent will work in a hybrid model. The other 10 percent of staffers will be remote. For JPMorgan, while flexibility is one of its guiding forces going forward, company leaders have indicated that, at least for certain portions of their workforce, being in the office full-time is crucial. “It doesn’t work for young kids or spontaneity or management,” JPMorgan Chase CEO Jamie Dimon said during an interview at Davos last week, adding that for other jobs, like researching and coding, remote work is more reasonable.

Big-box chain Target has adopted flex space as part of its workplace strategy going forward as well. In the spring of last year, company leaders shared details about how they redesigned the company’s headquarters in Minneapolis, Minnesota, to better accommodate new hybrid work models and began testing a flex floor concept at their HQ buildings. “We’re leaning into a ‘flex for your day’ approach and encouraging our HQ team members to test and explore when and where they need to be on any given day to do their best work,” said Senior Vice President, Future of Work, HR at Target, Steve Brophy. The office redesigns also added open-format floor plans, Zoom-outfitted conference rooms, reservable desks and day lockers, and pickup spots for food and deliveries.

Another example of a headquarters revamp with plenty of flex space in mind is LinkedIn’s revamped headquarters in Sunnyvale, California. The company’s original plans in 2020 were scrapped in order to accommodate a hybrid-heavy environment. The company’s new office has a slew of different kinds of workspaces for employees, including deep focus areas, flex zones, and what it calls “neighborhoods,” workspaces grouped together for one team in an open layout that can be reconfigured and adapted for each team’s needs. 

JPMorgan, Target, and LinkedIn are among a growing number of corporate occupiers rolling out flexible workspaces as part of their office vision going forward. For the companies, it’s a compromise between allowing remote and hybrid work and still keeping a strong office presence and company identity. It’s also a way to boost employee retention, an important issue for a lot of companies right now, given the ongoing labor shortage. 

For building owners, shorter lease lengths could cause problems in a few ways. With fewer tenants locked down for longer time periods, turnover is higher and can lead to a higher vacancy rate. With higher turnover, owners may very likely have higher costs related to concessions, tenant improvement, and leasing commissions. No one knows for sure how long remote work as a result of the pandemic will continue, and opinions are split on whether it will be permanent or have an end date on the horizon. But many in the industry feel that flexibility will continue beyond our current era and are building out their corporate headquarters to adapt to that reality and to bridge the gap between remote and in-person office work.

Contrary to popular opinion, short-term rentals have existed since the 1950s, although under the more straightforward title “vacation rentals.” The advent of an online marketplace dedicated to the short-term rental market had trickled in at dial-up speed in the mid-90s before taking off in recent years. For many multifamily owners, the rise of the short-term market represented something of a nuisance thanks to liability exposure and quality-of-life disruptions for the other tenants. But now, many are

Contrary to popular opinion, short-term rentals have existed since the 1950s, although under the more straightforward title “vacation rentals.” The advent of an online marketplace dedicated to the short-term rental market had trickled in at dial-up speed in the mid-90s before taking off in recent years. For many multifamily owners, the rise of the short-term market represented something of a nuisance thanks to liability exposure and quality-of-life disruptions for the other tenants. But now, many are looking at short-term rentals with fresh eyes. 

Short-term rentals have been on the rise for over a decade until they ultimately culminated into a boom during the aftermath of the COVID-19 pandemic. Pandemic-induced events like the switch to remote work and long stretches of recurring lockdowns meant that a huge swath of the workforce was no longer constrained to their homes and was free to work from wherever they pleased. 

In context with the travel industry’s post-2020 recovery, the short-term rental industry was in a different league. Hotel chains like Hilton started seeing the light at the end of the tunnel as 2021 was drawing to a close with positive fourth-quarter earnings with revenue per room increasing by 60.4 percent from the previous year (we’re talking $73.65 dollars per room in 2021 compared to $46 dollars per room in 2020), but that was nowhere near pre-pandemic levels. Airbnb, on the other hand, exceeded pre-pandemic sales with a fourth-quarter revenue of $1.5 billion, a 38 percent increase from the same period in 2019.  

There are plenty of reasons for multifamily owners to embrace short-term rentals, the first being how it can help bring in revenue on units that would have otherwise sat vacant. It frequently takes a property manager up to 12 months to lease up a high-rise multifamily complex after it is completed. This time frame can be painfully costly for owners, especially since they have just spent so much on construction. In order to combat this, start-ups like Placemakr sign contracts with developers to occupy vacant units for a brief period of time, creating temporary hotels within multifamily buildings. Once the unit is fully occupied, the start-ups leave the location. This kind of pivot has led to many property owners embracing the short-term rental trend.

Living a flexible lifestyle has become more common after the pandemic, but the thirst for experiential travel has also led to the growth of a new type of model. Private accommodation bookings in multifamily dwellings make up the majority of the short-term rental market, but in recent years, there has been a convergence of traditional property managers and hospitality providers. Companies like Sonder and Sentral have expanded upon the short-term model by offering traditional apartment units with the veneer of a luxury hotel room experience. Sonder owns and operates all of their properties so that the only people who stay in the units are the guests themselves, but Sentral, a proprietary managed home share program that teamed up with Airbnb last summer, is a homeshare business model that’s unique in that it offers longer stays for guests untethered by an office building.

Sentral allows residents the ability to home-share their units and the option to monetize their spaces. Meanwhile, guests can stay for a night, a month, or even a year in a designer-furnished or unfurnished residence, with the goal of giving visitors the feeling of “living like a local” in some of America’s urban bright spots. “We know people are yearning for interesting experiences,” said Lisa Yeh, Chief Operating Officer at Sentral, “and people are willing to pay more for those experiences.” 

Companies that have tweaked the old-school model have given multifamily owners who were once hesitant to the short-term model reason to be intrigued. But even so, short-term leases can be advantageous for landlords since they enable rental rates to be modified more frequently in response to market circumstances. On the surface, the model looks like a win-win for property owners as demand for short-term rentals remains strong in the midst of a recession, but if the economy takes a plunge, property owners who lease on a short-term platform could be in trouble. 

There are, of course, some downsides for property owners when it comes to venturing into the short-term model, even when the economy is thriving. Sure, property owners can take advantage of the short-term rental model to generate more revenue, but short-term rentals can experience higher wear-and-tear than long-term rentals, which means that property owners may need to devote more time and resources to maintaining and repairing the property. Not to mention the burden of purchasing extra insurance as standard policies may not provide adequate coverage. 

Then there is the issue of community pushback. Turning a unit into a revolving door of visitors as opposed to a long-term tenant who will ingratiate themselves into the local community runs a greater risk of having people who are more likely to cause damage to the property or create a disturbance for neighbors. But against the backdrop of a nationwide housing shortage and a recession, short-term rentals may incite more ire. Short-term rentals have a history of being accused of stripping local communities of housing supply by way of commodifying residential real estate, especially in smaller cities that have fewer resources and housing stock. Airbnb has argued that not all short-term rentals stem from a reallocation of housing supply from long-term rentals to short-term rentals and that short-term rental platforms can encourage residential growth.

The balance of pros and cons can look even dicier when set on shaky economic ground. Vacation rental management software Hostaway claims that a short-term rental property can generate 2-3 times the amount of monthly rent compared to a long-term rental (that estimate hinges on the conditions of the property and local market demand), but that’s assuming that there will be enough tenants to rent the space in the interim. During a recession, people’s disposable income decreases, so spending cuts need to be made. What’s the first to go? Travel and leisure. 

There’s the domino effect of increased competition that can happen when more property owners find themselves strapped for cash and decide to take the short-term rental leap. The reality of supply outpacing demand is already happening. According to AirDNA, the total supply of short-term rentals has skyrocketed since 2020, creating a record-high number of listings. AirDNA predicts an ongoing rise in terms of the number of listings available in 2023, although occupancy is predicted to drop once again as a result of supply expanding faster than demand. 

Oversupply and the expectation of a recession just around the corner has the market outlook for the short-term rental market to fall beneath its meteoric rise, but AirDNA still sees a small altitude of growth. Demand is certain to dampen this year, but projections are based on the idea that we’ll only be dipping into a mild recession over the next twelve months. While many economists expect this year’s downturn to be brief with very little sting, David Kelly, chief global strategist at J.P. Morgan Asset Management, isn’t convinced. “The risk of a near-term recession is climbing. However, such a recession would be more like sliding into an economic swamp than falling off an economic cliff. While a ‘swamp’ recession wouldn’t be very deep, the economy would likely struggle to get out of it,” he said. “Given the lags with which interest rates impact both housing and trade, it is unlikely that the economy would pick up much pep in early 2024.”

Even with this bleak expectation, titans in the short-term rental industry don’t find the idea of an economic downturn all that vexing, even if it’s going to be worse than initially predicted. Nate Blecharczyk, Airbnb’s co-founder and chief strategy officer, believes his company’s short-term rental model is completely recession-proof. “For most businesses, a recession is never a good thing, and I would never wish for something that is not good for others,” he said before adding, “I think actually we would thrive in a recession.” Airbnb’s seismic bounce-back in the aftermath of the COVID-19 pandemic certainly helps prove Blecharczyk’s prediction, but there is still plenty of reason to think that the market isn’t as bulletproof as he thinks. 

Overall, during a recession, the short-term rental market can be a risky venture for property owners. They may find it difficult to generate sufficient revenue and may be exposed to additional risks, such as legal and regulatory issues as well as credit risks. It’s important for multifamily property owners to carefully consider the state of the economy and the potential risks and rewards before deciding to incorporate short-term rentals into their strategy. Short-term rentals have been around for a while, but there is a limit to their growth.

The promise that electric vehicles (EVs) would soon dominate the auto industry has been a dream of auto industry innovators since 1914 when Henry Ford announced that he and Thomas Edison had been tinkering away at a car powered by electrical power. Ford promised that the vehicle would be “cheap and practicable” for the mass market, but after a slew of technical difficulties and some high-profile bickering, the project was ultimately scrapped. 

Interest in pushing cars that run purely on electric

The promise that electric vehicles (EVs) would soon dominate the auto industry has been a dream of auto industry innovators since 1914 when Henry Ford announced that he and Thomas Edison had been tinkering away at a car powered by electrical power. Ford promised that the vehicle would be “cheap and practicable” for the mass market, but after a slew of technical difficulties and some high-profile bickering, the project was ultimately scrapped. 

Interest in pushing cars that run purely on electric power into the mainstream would spark periodically over the years before fizzling out for a number of reasons, one of which being the sheer impracticality of owning one with the lack of charging infrastructure. But recent announcements from both the Biden administration and prominent automakers could create the charging framework necessary for EVs to really thrive. These same investments are also paving a new opportunity for real estate owners interested in installing EV charging stations on their properties to enhance their investment.

All-electric vehicle sales have been gaining momentum in the U.S. within the past decade, but they surged in 2022, despite computer chip shortages and a hobbled supply chain. Five point eight percent of all vehicles sold last year were fully electric, almost double the amount from the previous year, and steep investments from the federal government are set to spur further adoption. The Biden administration wants EVs to account for 50 percent of cars sold in the U.S. by the end of this decade, and the recent passage of the Bipartisan Infrastructure Law doles out $7.5 billion to build out a national network of 500,000 EV charging stations. Not to mention, the USPS just made a historic announcement to deploy 66,000 all-electric delivery vehicles and the installation of EV charging stations in post offices across the country.

While fully electric vehicles have yet to dominate the auto market, their rising popularity and have given commercial property owners more confidence to invest in adding EV charging stations to their properties. In the multifamily sector, there’s a growing industry perspective that installing chargers will boost the asset value of a building since EV owners tend to be wealthier and are thus more desirable to have as renters. But setting up charging stations for electric cars is an endeavor riddled with complications thanks to local regulations and zoning codes, equipment type, and high costs of preparing the area for installation, the installation itself, and regular maintenance. The high upfront costs that owners can incur, even with the latest slew of tax incentives that have recently been passed into law. 

Still, commercial property owners have a lot to gain by taking the EV charging plunge if they can, now that there’s been a hefty investment to add necessary charging infrastructure. The Biden administration’s ambitions have made the investment in EV charging stations less of an uncertain one, but new technology is potentially making a better business case for property owners to do so as well. Vehicle-to-grid (V2G) technology, sometimes known as bidirectional charging, refers to the use of EVs as a source of stored energy that can be fed back into the electrical grid. These vehicle-to-grid systems allow EVs to charge and discharge electricity to and from the grid, depending on the needs of the grid and the availability of excess energy in the EV’s battery. 

By and charge

Because V2G systems allow EVs to act as a distributed energy storage system, it gives property owners the ability to provide services like balancing energy supply and demand throughout the day and providing backup power during outages. Buildings can strategically employ energy from automobile batteries that are shared on their system during peak hours by using modern energy management software. 

Additionally, V2G technology could also help increase the overall demand for EV charging infrastructure, which could, in turn, drive up the value of commercial properties that have EV charging stations installed. Property owners can also benefit from installing V2G technology by reducing their energy costs, managing their energy demand, and improving the reliability of their energy supply. But if EVs could send power back to the grid, that would provide a huge value-add of an additional source of revenue for landlords and property owners in the form of grid services. 

Vehicle-to-grid technology may be an emerging tech category, but mounting pressure to mitigate climate change is making it an attractive one. In 2017, V2G technology’s global market was assessed to be worth $2.78 billion, but a recent market report shows that significant growth is expected in tandem with widespread EV adoption. By 2031, the V2G market is anticipated to grow at a yearly rate of 16.45 percent to $12.75 billion, and a recent announcement from a major automaker is making that prediction seem just as tangible as it is optimistic.

Going places

Last December, Toyota announced a partnership with Oncor Electric Delivery (Oncor), a Texas-based electric transmission and distribution firm, for a major pilot project centered around V2G technology. Toyota’s Electric Vehicle Charging Solutions (EVCS) team will be in charge of the project, which will be a significant first for Toyota in the United States in terms of working with a public utility on EVs. 

The two businesses have first agreed to work together on a two-phase study initiative using Oncor’s research and testing microgrid at its System Operating Services Facility in south Dallas, which is close to Toyota’s neighboring national headquarters. The microgrid is made up of four interconnected microgrids that can run separately, concurrently, in tandem, or as a single, bigger system. A V2G charger, solar panels, and battery storage are all included in the microgrid’s subsystems for testing and assessment. 

After this first phase, the project will move into a second phase that is scheduled to begin in 2023. This second phase will include a V2G pilot where testing will be done with EVs connected at homes or businesses within Oncor’s service area in accordance with all customary interconnection procedures and agreements.

The partnership will help Oncor and Toyota gain insight into the present and upcoming needs of its customers. Additionally, it will give Oncor more knowledge about the infrastructure required to support the rapid expansion of electric vehicles and electric vehicle charging infrastructure, accommodate their needs, and support electric vehicles. It will also help Oncor better comprehend how V2G will affect the electric grid. But more importantly, the partnership is prompting investor confidence in V2G technology, which is a big pivot from nearly two years ago.

Musk we?

Back in 2020, billionaire and tech oracle Elon Musk wasn’t the biggest cheerleader for V2G tech as he insisted that it wasn’t economically viable. “Vehicle-to-grid sounds good,” the Tesla CEO had said in a presentation, “but I think it has a much lower utility than people think.” That was because V2G can wear out an EV battery’s lifespan faster because the capability to discharge means that the battery has to charge more often, but there are more drawbacks. 

One report shows that V2G yields a loss of energy as well, as efficiencies are typically between 50 and 70 percent. For automakers, V2G functionality necessitates specific hardware in addition to supporting software, primarily in the form of a bi-directional inverter. V2G integration is, therefore, more expensive for manufacturers, which can prevent some models and trim levels from supporting it.

Tesla dominates the EV market, so the fact that the company’s leader downplayed V2G so much made the tech’s potential look more like a pipe dream than a worthwhile venture. Tesla’s vehicles cannot be statically discharged, although the necessary hardware seems to be in place for all of the 2022 models. Enough people had managed to bypass the battery’s software to provide power, that Tesla issued a warning to owners that doing so would void the battery’s warranty. But while it’s likely that Tesla has bidirectional tech in its back pocket, it has an ulterior motive to postpone the tech’s introduction for as long as possible: if Tesla’s vehicles were V2G-capable, then the $10,500 Tesla Powerwall home battery immediately becomes obsolete.

V2G tech is still considered niche, but opportunities for the tech to thrive only grow as more and more EVs are put into play. The dream of having more electric cars on the road than gas guzzlers is finally looking like a plausible reality, and that gives more credence for property owners to deploy their own EV charging stations so that they’ll be better equipped to take advantage of V2G tech when it becomes more widely available.