Small Business Labs

Commercial Real Estate Industry Facing The Perfect Storm

Commercial real estate is getting a lot of media attention, with most articles forecasting stormy weather ahead for the industry.

For example, the title of Goldman Sachs's recent podcast on this topic is Navigating the 'perfect storm' in commercial real estate.

The Wall Street Journal's Commercial Real-Estate Woes Run Deeper Than in Past Downturns is also gloomy. Key quote: 

"Landlords are contending simultaneously with a cyclical market downturn and with secular changes in the way people work, live and shop. The sudden surge in interest rates caused property values to fall, while the rise of remote work and e-commerce are reducing demand for office and retail space."

Fortune's Office vacancy will increase by 55% by the end of the decade as hybrid and remote work push real estate to an 'inflection point' again paints a grim picture. Key quote:

"As much as 330 million square feet of U.S. office space could become vacant and unused by 2030 due to remote and hybrid work, according to a report released Wednesday by global real estate firm Cushman & Wakefield. When added to another 740 million square feet of space that will become vacant from "natural" causes, the total is around 1 billion square feet of unused office space building up over the next seven years."

And the retail industry continues to get hit by the shift to online shopping - and has to also deal with challenges related to remote work.  

Yahoo Finance's Retail store closures 'to sharply accelerate going forward': UBS research covers a study that estimates that "50,000 retail stores will close out of the current base of 940,000 stores in the United States by 2027, excluding gas and food service stations."  

If things turn out to be as dire as these articles are saying, it will have significant negative impacts on the overall economy.

We're more optimistic than these articles.  

But small businesses and independent workers with exposure to the commercial real estate industry should think through how they will deal with a major downturn in the commercial real estate market. 

Update The New York Times published A Bleak Outlook for Manhattan’s Office Space May Signal a Bigger Problem this morning.  It's hard to keep up with all the gloom and doom commercial real estate stories these days.  

The Surge in New Business Applications Shows No Sign of Slowing

The March 2023 Business Formation Statistics were released yesterday by the U.S. Census. And it was another strong month.

As the Census chart below shows (click to enlarge), there were 451,752 new business applications in March.

This continues the surge in new business applications that started during the pandemic in 2020. 

Prior to the pandemic. applications averaged around 300,000 per month. Since Q3 2020, they've averaged around 450,000 per month.  

About 300,000 of March's applications come from what the wordsmiths at Census call "applications other than high propensity."

These are applications from people not planning to hire employees - in other words, freelancers and other kinds of solopreneurs.

This continues the long-term shift in applications to nonemployers businesses. In 2005, about 60% of all applications were from businesses planning to have employees. Since the surge, about 2/3rds of all applications are from firms planning to be solopreneur businesses.

It's important to note that new business applications are applications for a federal tax I.D. And only about 20% of those who apply for a federal tax I.D. end up starting a business.

So if you read somewhere there were 450,000 new businesses started in March, it's wrong.

But a surge in applications also means a surge in new small and solopreneur businesses - with March's applications leading to about another 90,000 new businesses over the next year or so.

We're two and a half years into this surge in new business applications. We think it's now safe to say it's real.

Tupperware's Troubles

Tupperware, the iconic maker of food-storage goods, said it could go out of business.  

Founded by Earl Tupper in 1946, Tupperware was one of the first direct selling companies. Their sales channel innovation was independent sellers holding "Tupperware" parties, where primarily women hosts sold the product to their friends and family.  

The picture below (click to enlarge) is from the company's website.  It shows the title character from Amazon's popular series The Marvelous Mrs. Maisel hosting a Tupperware party (the show takes place in the 1950s).  

Nice Hats!

The direct selling industry is quite large. According to the latest statistics from The Direct Selling Association, 7.3 million Americans earn money as independent direct sellers.

Almost all direct sellers do it part-time (6.8 million), with most looking to direct selling as a flexible way to supplement their income.

But Tupperware has run into a couple of problems.

First, thanks to the gig economy, there are many more flexible, independent work options for people looking to supplement their income. This has resulted in fewer sellers choosing to work for Tupperware.  

Second, organizing parties and in-person selling is much harder due to today's time-challenged adults. Because of this, much of direct selling has moved online (and called social selling). 

But Tupperware has not effectively made the transition to online sales.

This is partly due to Tupperware being viewed as an old, stodgy brand by younger consumers.  This hurts their sales and their ability to attract younger sellers.  

The bottom line is Tupperware's sales are falling, their stock price is falling faster, and, adding to their troubles, they have a large amount of debt.

Despite Tupperware's troubles, the direct selling industry continues to do reasonably well overall. And we expect it to continue to attract millions of Americans looking for a flexible way to supplement their income.

The Creator Economy Continues to Grow and Despite Challenges, Creators are Highly Satisfied

MBO Partners recently released The Creator Economy: Staking Out New Territory, the third year of their ongoing tracking study of digital content creators.

A key finding is that the number of U.S. independent digital content creators (self-employed, solopreneurs, freelancers, etc.) who earn money by creating and distributing digital content increased by 14% in 2022, reaching 8.1 million. (click to enlarge the study chart below).

Creators report some of the highest satisfaction rates of all workers.  Over nine in ten (92%) report being highly satisfied (83%) or satisfied (9%) with their work.  

They're also passionate about being a creator - over two-thirds (68%) say pursuing a passion is the main reason they became creators.

And the vast majority plan to continue as digital content creators - 83% plan to continue as independent creators (57%) or build a bigger creator business (26%) over the next 2-3 years.

Regarding demographics, most creators are young - 71% are aged 40 or younger - and 57% are male. About 2/3rds report working in the creator economy part-time.

But despite the high satisfaction levels, creators face a number of challenges.

The well-known issue around creators' struggles to earn a living is evident from the study findings. Over half of the creators (61%) report earning less than $25,000 from their creator economy work, with 44% reporting earning less than $10,000.

Two other challenges jump out from the findings.

Almost four in ten independent creators (39%) say it's hard to be successful, and over one-third of all content creators (38%) report struggling with boundaries and burnout. These shares are substantially higher than reported by other types of independent workers.

But despite the challenges, many aspire to join the creator economy. The study found that 4.9 million Americans who say they are participating in the creator economy have yet to earn income from their creator economy activities.

And a stunning 41% of those with traditional jobs said they want to become digital content creators. Few of these workers will follow through, but these numbers illustrate how aspirational the creator economy is.

Despite the challenges and issues creators face, we expect their numbers to continue to increase over the next 3-5 years.

Becoming a content creator is easier and cheaper than even a few years ago - and the number of people aspiring to be creators is too large for the creator economy not to grow.

Emergent Research (that's us) worked with MBO Partners on this study.

Academic Paper Defines Digital Nomadism and the Five Types of Digital Nomads

An excellent academic paper - What is a digital nomad? Definition and taxonomy in the era of mainstream remote work - was recently published by the World Leisure Journal. 

Based on extensive research, the paper provides a detailed definition of digital nomadism. Key quote:

Digital nomads use digital technologies to work remotely, they have the ability to work and travel simultaneously, have autonomy over frequency and choice of location, and visit at least three locations a year that are not their own or a friend's or family home.

We like this definition because it provides more specificity than other definitions, including the one we use. In particular, we think "have autonomy over frequency and choice of location" is an important addition to the definition of digital nomads.

Clarity around trend definitions is an underappreciated issue. Since we study emerging trends, we regularly see the problems associated with the lack of consistent trend definitions. 

For example, the lack of a clear, consistently used definition of the "gig economy" continues to cause problems - especially confusion among policymakers.  

The paper also defines five types of digital nomads, illustrated in the paper's chart below (click to enlarge).

Like most academic journal articles, the paper extensively reviews academic research (with links) on digital nomads. 

Literature reviews are often one of the most beneficial parts of academic papers. We often find new sources of useful information in these reviews. 

We were interviewed by the author, anthropologist Dave Cook, and some of our work on digital nomads is cited.