ROI Falls to the Investor who Understands Building Obsolescence

Return on investment will fall to investors who adjust their assumptions to encompass technology and demographic changes.

Technology and evolving consumer behavior is reshaping real estate: it will change how civil engineers and architects design buildings, and it will make certain buildings obsolete. The effect of e-commerce on mall traffic is an obvious example, but more change is coming.

We value real estate based on comparable sales and using discounted cash flow models, but these models often depend on assumptions that may not play out. Return on investment will fall to investors who adjust their assumptions to encompass technology and demographic changes. Here are five forces I believe will drive building obsolescence in the next 20 years, and ways in which commercial real estate owners should adapt.

Joseph P. Derhake serves as CEO of Partner Engineering and Science Inc., an engineering and environmental due diligence consultancy. He can be reached at JDerhake@Partneresi.com.

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