2019 Market Outlook for Venture Tech and CRE
2018 was a year of reduced liquidity in the traditional CRE market with asset prices finally feeling the weight of the consecutive rate hikes by the FED, as monetary policy and the pull back from quantitative easing has hit Cap Rates. This impact has squarely been felt the most by the largest office markets pushing asset prices to lower levels and landlords as we had predicted in last years prospectus, are starting to see new threats of from non-traditional competition. Numerous "space as a service" providers like WeWork, Convene, Industrious and others whose business models have evolved to not only compete with landlords but platforms like WeWork and Eden ( on our 2019 company to watch) are taking on a larger wallet share of tenant services traditionally captured by CRE service providers such as CBRE. With new business models, a larger focus on disruptive technology and tenants that are searching for ways to better optimize their space, 2018 headlines were dominated by well capitalized start up's and technology companies that have their sights on transforming space and how it is occupied, operated, leased and transacted.
In the residential market the U.S. is facing an epic housing crisis that is touching almost every state in the country. This shortage of over 4.5M housing units, will impact our economy and society negatively for decades to come unless innovative solutions are delivered soon. Local and state governments announced massive initiatives in 2018 to help solve the shortage. The incoming Governor of California is seeking 3.5M new units by 2025. The District of Columbia Mayor is calling for 36,000 new units in DC and an additional 240,000 units in the Washington region. Tons of innovation in construction is hitting the market with groups like Katerra who raised over $500M from Softbank, Blokable a portfolio company of our friends at Building Ventures, and our portfolio company Urbaneer are focused on making space modular, flexible and crushing the speed to market metric for construction. Other startups like Project Nomad, lead by former Sidewalk Labs entrepreneur Colin O'Donnell, (on our 2019 must watch list) are focused on the housing crisis with a blend of community, portability meets urban planning. Think if Burning Man tackled the housing challenges of communities.
The "Co-Living" sector has validated its business model in 2018 with enormous funding levels for various brands to include the Collective from the UK who raised $400M, Sonder that raised $135M and Selina who raised $90M. The intersection of hospitality and residential living models is an even more interesting niche for those of us that travel constantly for both business and leisure. Our colleagues at Camber Creek are a lead investor in WhyHotel who recently raised $14M in total funding in 2018 for their urban hospitality platform. But if you are someone that likes to live and work in beautiful places, keep your eyes open for brands like Outsite that caters to digital nomads with locations in exotic and hip locations like Venice Beach, Tahoe, Bali, Lisbon, Brooklyn, Hawaii, Swiss Alps and many others.
Can't forget to mention our friends at Outlier Realty in DC, the regions most savy residential developer, owner and innovator in Co-Living, has expanded into other markets to include NYC, Philly, Denver, Richmond to name a few with a Co-Living strategy.