Publications

- June 1, 2019: Vol. 6, Number 6

Shopping for office space at the mall: Also, urban transit prepares to go airborne

by Mike Consol

That traditional U.S. shopping malls are in their death throes is an old story. What’s more current is the various ways these geographically well-positioned structures are being repurposed. Increasingly, they are being turned into office space. Westside Pavilion, a dying mall in Los Angeles, is one example. Hudson Pacific Properties aims to spend $410 million to transform it into a 584,000-square-foot Google office complex by 2022. It will be dubbed One Westside. Hudson Pacific was looking for an urban site with big floor plates and exceptionally high ceilings to redevelop into what it called “state-of-the-art creative office space” for future tenants. The company also wanted a central location near mass transit and major highways, in one of the handful of West Coast cities where it usually builds. The Westside Pavilion had all the desired characteristics.

An estimated 75,000 more U.S. stores could close by 2026 as consumers increasingly shift their retail purchases to online sites, though grocery stores appear immune to the so-called retail apocalypse. New grocery store openings increased by 30 percent in 2018 over 2017, with more than 17 million square feet of new space added. More than one-quarter of those openings were in California, Florida and Texas, driven by expansion of their state-based grocers, including Publix Super Markets, Sprouts Farmers Market, Aldi, The Kroger Co. and H-E-B Grocery Co.

Boeing NeXt, the giant aircraft manufacturing company’s disruptive mobility arm, has been developing a passenger air vehicle and a cargo air vehicle, both autonomous systems designed to fill gaps in the urban and regional airborne mobility. In January, the electric-powered passenger model, which can carry a maximum payload of 500 pounds, completed its first test flight. The company cargo vehicle, meanwhile, has been described by a Boeing executive as a “convergence of technology in terms of hybrid-electric propulsion, vertical takeoff and landing, and autonomy that is going to unlock air travel in ways that we have not seen it before.”

Honeywell Aerospace products and services — already a staple in commercial, defense and space aircraft of almost every conceivable kind — has turned its sights on urban airborne transportation systems as well, ensuring Boeing will have a parts supplier and competitor. To that end, Honeywell has inked several new partnerships, including one with Slovenia-based Pipistrel, which publicly announced at the first Uber Elevate Summit in 2017 that it was working on an urban aerial aircraft. In addition, Honeywell has been developing a hybrid-electric turbo-generator with a primary purpose of adapting it to vehicles in the urban air mobility industry. It is an electrified version of a 1,100-shaft horsepower HTS900 gas turbine engine already found on many helicopters.

Self-driving tractors equipped with artificial intelligence are revolutionizing agriculture. In addition to plowing or harvesting farmland without requiring drivers, advanced tractors also monitor fields and report early symptoms of uneven emergence, weeds, nutrient deficiencies, disease or insect infestations, water damage and equipment issues. One such AI-fortified tractor, manufactured by Israel-based Taranis, is already working millions of acres of farmland in Argentina, Brazil, Russia, Ukraine and the United States.

Will Uber and Lyft ever make money? History teaches us that taxi monopolies are more than capable of being toppled, and an app-based ride-hailing monopoly — which Uber and Lyft are striving to be — isn’t likely to be any less insurmountable. As long as competition is unregulated, entering local markets is relatively easy for the companies. But, if one draws a parallel between Uber and Lyft ride hailing and the unregulated New York City taxis of yore, we find that Depression-era New York City had scads of unemployed citizens who started driving taxis and undercutting one another on price as they struggled to make a living. The city’s avenues were glutted with vehicles acting as taxis, making it nearly impossible to earn a living wage. Customers benefited; drivers went broke. Sounds suspiciously like Uber and Lyft, unregulated and taking on a proliferation of drivers. What’s more, as ride-hailing competition increases, it becomes a commodity business, with customers being agnostic about whether their ride comes via Uber or Lyft or a legitimate interloper. Try raising fares and boosting profits in that environment. Also, because ride-hailing drivers own the vehicles they use, they have no need to demonstrate allegiance, forcing ride-hailing services to create inducements to keep drivers from defecting. Those inducements come with a cost, compounding the hill Uber and Lyft must scale to finally achieve profitability.

Mike Consol (m.consol@irei.com) is editor of Real Assets Adviser. Follow him on Twitter @mikeconsol to read his latest postings.

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