Two of the Top Ten Issues Affecting Commercial Real Estate

Two of the Top Ten Issues Affecting Commercial Real Estate

Each year, the Counselors of Real Estate produces its annual report on the Top 10 Issues Affecting Real Estate. I had a hand in researching and writing the Top 10 list this year. The full list will be released at the Counselors of Real Estate Conference in New York in May.

As a sneak preview, I include two of the top ten issues below.

The Impact of Technology on Office Space

The development of increasingly sophisticated and innovative technologies coupled with growing acceptance of flexible, less conventional workspace models have greatly reduced the demand for physical office space in the traditional sense—a trend that is likely to continue.

The 21st century worker is electronically connected to the boss, one’s co-workers, clients and prospects 24 hours a day, seven days a week with the ability to effectively participate in virtual meetings, from home, the local Starbucks, the airport or any location with a Wi-Fi connection.

Workers are more interested in collaborative space and the flexibility to move their computers to the areas that best support their work that day, then fixed offices or cubicles. Collaborative meeting spaces, not individual offices, have become more prevalent. All of these trends have led to dramatic reductions in dedicated space per office worker from about 225 sq. ft. in 2010 to 176 sq. ft. in 2012, according to CoreNet Global.

There has been some push back recently to getting rid of personal offices and cubicles, as certain research has shown that creativity and innovation are often best fostered in quiet contemplative work spaces. In some cases, employers are concerned that more chatting is going on than productive work. Like most trends, the best space configuration will depend on a company’s particular business and people, and the debate will continue, but trends towards reduced space use are forecasted to continue.

Another, perhaps more important trend is the change in the workforce. As a greater portion of the work force moves from salaried to independent contractor status, will the home office become the “new normal” as the corporate headquarters becomes a smaller, more streamlined version of its former self? Countering this trend are recent announcements by companies such as Yahoo that have changed policies to encourage people to work at the office, believing that face to face collaboration and relationships, are essential to firm productivity.

Have we finally reached the point where forecasted declines in office space are a reality? How widespread is this phenomenon? Smart investors are examining these questions and taking action to both protect their portfolios and carefully consider new acquisitions.

Echo Boomer Housing Demand

The largest generation of young people since the 1960s are called "echo boomers" because they are the genetic offspring and demographic echo of their parents, the baby boomers. Born between 1982 and 1995, there are nearly 80 million of them, and they are having a huge impact on entire segments of the economy.

Echo boomers are drawn to the urban lifestyle, unlike their parents and grandparents, who fled cities for the suburbs. Typically, echo boomers gravitate to the urban core with access to diverse activities, cultural amenities, restaurants and, perhaps most importantly, greater employment opportunities.

They are willing to trade size for location and are moving into smaller housing units proximate to employment and affordable mass transit options. In many locations (such as the San Francisco Bay Area), echo boomers continue to work in the suburbs, yet choose to commute from the city. This generation tends to be renters and is not necessarily seeking, or financially capable of buying a home. A highly mobile generation, they are not chained to their automobiles, as were their predecessor generations. Walking, bicycling and car sharing are in their DNA.

These and related Echo Boomer trends are exacerbating many of the current problems confronting suburban locations due to decreased housing and retail demand, transportation problems, a shrinking tax base, and a variety of related issues.

Yet suburbs are not standing still, as they reinvest in parks, bike paths, and mass transit, and identify creative new uses for obsolete shopping malls and other antiquated symbols of a suburban lifestyle, which, for a younger, less possession driven generation, has lost its appeal and affordability.

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