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Bruce Kirsch
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Why The Regus Executive Suites Business Model Will Never Work For Retail

27June13

The other day I was pitched by a group who wanted my thoughts on their startup business idea.

The pitch was in essence “Regus for retail”, which meant that they wanted to rent an existing retail space in an urban core, and then create stalls for different startup retailers. A multi-tenant variant of pop up retailing.

They thought that they could get disgustingly high rents on a per square foot, shorter-term, flexible basis the same way Regus and the other executive suites players get hundreds of dollars per foot a year for their serviced offices.

The first thing that popped into my head when hearing the pitch was “flea market”, and how flea market merchants were all essentially startup businesses. Flea markets take place on real estate that is essentially worthless.

The next thing was the inevitable clashing in a closed-air, urban, retail space of the selling activities of the various retailers.

  • Auditory Clashing - The startup $10 smoothie vendor blending furiously over the classical music merchant
  • Ofactory Clashing - The smell of the dude sizzling bacon for his righteous paninis.
  • Visual Clashing - You’d have one vendor with a cheap vinyl banner vs.the higher-level presentation of their adjacent tenants, etc.

The critical concept that was lost on these entrepreneurs was that retail is an external-facing activity, vs. office use being internal-facing, and generally quiet and insulated.

The complexity of the mini-leases and the constant re-marketing of the unoccupied spaces, all for a staccato rent stream, probably isn’t worth it. No lender would want to take a risk like this, and no urban core building owner would want a revolving-door circus like that on their ground floor, at least not over the long term.

While I am all for improvement and innovation in the real estate business, often times things are the way they are for good reason.

Thoughts?


Filed under: Business Practices

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