The sharing economy and real estate

By: J. David Chapman/April 19, 2018

I am returning from the American Real Estate Society’s annual meeting at Bonita Springs, Florida, the convergence of the best and brightest academic minds in real estate and major players in the industry. I’m sitting in the airport thinking about an issue that will likely cause considerable disruption to my reader base.

The concept of the sharing economy was covered in previous columns about Airbnb and its effect on the hotel industry, Uber and its effect on public transportation and the built environment, and co-working space such as WeWork and its effect on the local office markets. Millennials have bought into this concept of sharing things, such as physical space in exchange for services and convenience, and it is now making waves in our industry.

Real estate industry leaders want to expand the concept into retail with brands such as Storefront and into industrial with Flexe. Bankers are being asked to finance these projects. Academics have been asked to research and study the two biggest issues confronting the sharing economy, valuation and financing.

I have been renting offices to entrepreneurs for some time. I typically do one-year leases, followed by month-to-month after the first year. Rents are approximately $450 for an office with minimal services and amenities. Bankers don’t like short-term leases and appraisers see less value in short-term and month-to-month rents. Both like larger tenants with long-term leases. Co-working space takes my office concept to a new level of flexibility for the user. Typical financiers see this flexibility as higher risk.

On the residential side, Airbnb is shifting from renting rooms to renting entire properties. We are researching whether individual property owners who have rented homes to people on annual leases are now better off furnishing a home, taking responsibility for the utilities, and renting short-term through internet technology sites such as Airbnb and HomeAway. It’s complicated to determine, but I want to know the financial impact.

There are many people concerned, and tracking the impact the sharing economy is having on our industry; however, not many are looking at the owner decision of whether it is financially better to convert to these concepts. Watch for our research regarding the decision to share or not in both commercial and residential in the future.

J. David Chapman is an associate professor of finance and real estate at the University of Central Oklahoma. (jchapman7@uco.edu).