Why the Average S&P 500 Company Lifespan Is Shrinking
In the 1950s, the average S&P 500 company lived on the index for 60 years.
Today, that lifespan is less than 20 years. And experts believe that number is only going to shrink as we move further into the future. In fact, if one projection holds true, half of the companies on the S&P 500 index today will be replaced over the next 10 years.
While there are several factors contributing to this trend, here’s the main reason this is happening: creative destruction.
New ideas become old if they’re not refined and don’t evolve in real time. To survive, businesses need to earn their place every day. Otherwise, even household names will become obsolete; look at the fate shared by Blockbuster, Circuit City, and Toys “R” Us.
In our age of technological disruption, no one is safe anymore. After moving into digital content production, exploring space, and gobbling up Whole Foods, Jeff Bezos has even decided to enter the fiercely competitive (and, to be fair, notoriously inefficient) healthcare industry.
Suffice it to say that things that no longer serve a purpose shrink rapidly these days.
Just look at Yik Yak, a social media startup that boasted a $400 million valuation in 2014 but ended up shutting down for good in 2017.
No matter what space you’re in, someone is working hard to take you down as you read these words. That wasn’t always the case 50-odd years ago.
In this difficult climate, survival requires agility.
Wise businesses increasingly understand this, which why we’re seeing commercial real estate leases decline in length, as companies feel they have less visibility into the future. They are, however, aware that their companies <em>will</em> change over time. Maybe their team expands, they bring a new product to market, or they reinvent their business model entirely.
Average lease length in commercial property rental in the United Kingdom (UK) as of 2003 and mid-2013 (in years)
When you’re chained down by a long-term office lease, pivoting is that much more difficult. Your capital is tied up and you’re confined to a specific location. That’s why forward-thinking businesses are seeking flexible leases that enable them to be nimble—to the point where, sooner or later, five-year leases will become a thing of the past.
This makes sense: Understanding the link between agility and survival, why would any responsible company not try to shrink its footprint? Why would any responsible broker try to shove their tenants into 50-year leases?
The good news is there’s an easy fix to your real estate woes: Knotel.
We locate, build, and manage customized offices spaces on flexible terms for companies just like yours so you don’t have to. That way, you’re able to focus on growing your business without drowning in routine real estate concerns that have traditionally prevented companies from unleashing their true potential.
Adopting a flexible real estate strategy is one way to ensure that your company has a long, healthy life.