Is Amazon Really “Reinventing” the Construction and Real Estate Development Markets?

[Note from editor: originally published on AEC Labs]

A recent article in the UK’s Construction News publication (also picked up nationally here in the US by Bisnow) suggests that Amazon is “reinventing” the construction and real estate development markets thanks to its incredible growth, both in the US and abroad.

But what, specifically, does that mean? And should construction industry stakeholders feel “emboldened” or “threatened” by Amazon’s disruptive tactics? We have some thoughts to share on that assessment here at AEC Labs that should be of interest, and import, for AEC stakeholders who are keeping tabs on what the growth of tech giants like Amazon, WeWork, Google and others could mean for their business models here in 2018 and beyond.

• Office Space: like many tech companies, the Amazon campus’s office plans are open with lots of room for collaboration and socializing. But they go far beyond traditional cubes: the new spheres in the middle of its headquarters in Seattle’s South Lake Union neighborhood have over 400 species of trees that provide shaded areas for teams to meet and brainstorm among nature. They were not easy to design or construct, as you might imagine – the design architect and contractor (NBBJ and Sellen, respectively) have been tight-lipped about all of the technical components of the project. But this suggests that other firms looking to capture work in the tech space will need to confront similarly aggressive requests from clients, which not only has risk and liability implications, but will also test these firms’ technical capabilities and limits.

• Fulfillment Centers: the industrial markets have been booming nationally not only for Amazon fulfillment centers, but other e-commerce logistics facilities thanks to the growth in online retailing generally, from Walmart, Jet.com, Boxed, Wayfair, Zulily, and so many others. For AEC stakeholders, this means understanding how these kinds of projects are delivered (typically build-to-suit by an industrial landlord, like a Prologis, which will use bridging design documents that consultants prepare for the e-commerce provider). The technical specifications for these facilities are also becoming increasingly sophisticated, with automated components (like Amazon’s Kiva robots). So staying ahead of the technical curve for these kinds of clients will be critical for firms looking at the industrial e-commerce sector as a growth market.

• Physical Retail: The retail meltdown continues in 2018 – from Toys ‘R Us to others that simply can’t compete in the age of online shopping and evolving customer habits. It’s not just retail stores, though, that are suffering; shopping malls and movie theaters are all struggling to reinvent themselves and attract new customers whose tastes and interests continue to shift. It’s simply not enough to be a firm that specializes in a retail sector; mixed-use, entertainment destinations are the name of the game. And, with more Americans wanting to live and work and play in the same location, design firms in particular may need to evolve the profile of the types of clients they work for. Residential developers, in particular, are notoriously difficult clients, which will make risk management critical for firms looking to expand into this market.

• Amazon Go: Automated checkout technology – whether at a grocery store, a convenience store, or other physical stores – could transform this segment of the commercial interiors market, where many contractors specialize. Amazon rolled out a pilot Go store last year at its corporate headquarters in Seattle, and rumors abound that an expansion to New York City and other major cities is imminent (Chicago and San Francisco will be coming online soon). Designers and contractors will need to understand how this technology functions and adapt their processes accordingly.

• Artificial Intelligence: Amazon has invested heavily in AI and predictive algorithms for almost all of its twenty-plus year history, and it seems likely that there is a great deal to come for AI innovation. Here, the company’s recent Echo/Alexa partnership with Lennaris very interesting. Could we see Alexa-enabled smart homes delivered prefabricated through a third-party provider like a Lennar? Perhaps. There is a lot of work to be done in the AI space, but it could be coming, and quite soon.

But perhaps what’s most interesting (or frightening, depending on your perspective as an AEC stakeholder)  is a prediction from US-based retail analyst Neil Saunders of GlobalData that Amazon could ultimately try and target the construction and real estate sectors themselves.

“If Amazon ramps up physical expansion, I can see this happening. Amazon likes to vertically integrate aspects of its operation, such as delivery, so it is possible that it will create its own construction and development team. At the very least, the team might focus on the refurbishment of Whole Foods stores, but when you add warehouse expansion, new shops and offices into the mix, then there is the volume necessary to support such a team.”

Analysis from AEC Labs

So could Amazon eventually launch a real estate development and construction operation that tries to compete with Katerra or WeWork? Perhaps. No market seems beyond the behemoth’s reach, and more generally nobody should feel safe in their competitive position in our tech-driven, 21st century economy. And in some ways the company has already made a foray into the landlord space – its marketplace business allows third-party sellers to store their inventory in Amazon fulfillment centers.

But, much like how AWS launched after the legacy retail e-commerce business outgrew its traditional server space, it’s not inconceivable to think that as the company’s internal construction and development teams grow more sophisticated, Amazon could see value in providing their services to third parties. And, as the company continues to expand into brick and mortar retail with its Whole Foods acquisition and launching more Amazon Go stores, there is no reason why it couldn’t vertically integrate itself into a full-service design, development, and real estate player, providing fully kitted out retail storefronts. (This wouldn’t be the first time it competed with itself either – when Jeff Bezos made the decision to open up the Amazon.com platform to third parties (like Ebay), many pundits scratched their heads.)

In any event, there are many reasons to keep an eye on Amazon, and AEC innovation is just one of them. We’ll be paying close attention to this space during the rest of 2018, particularly as more Amazon Go stores roll out across the country.

[Note from editor: originally published on AEC Labs]

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