There is an interesting dynamic happening in commercial real estate these days. We are looking at cheap real estate everywhere we look, yet there is still very little demand for it.
The combination of the recession, overbuilding in 2005–2007, and a new paradigm in the work environment will probably not help the matter much.
A new report from Pimco says do not expect a rebound in commercial real estate. The 40 percent drop in values that we have seen since 2007 will probably remain with us for a while.
U.S. commercial property values are rebounding slowly and may remain as much as 40 percent below their 2007 peak levels, Pacific Investment Management Co. said.
More than $500 billion of real estate will hit the market as lenders dispose of assets or restructure debt on properties where valuations have dropped below loan levels, keeping “general” prices down for three to five years, Newport Beach, California-based Pimco, which runs the world’s biggest bond fund, said on its website.
“Capital is clearly returning to commercial real estate, helping to stem the value decline in the sector,” Pimco said in a report based on research in 10 cities. “Optimism should be tempered, because national price indices are misleading when transactions are limited and fail to reflect the significant uncertainty around property valuations.” via Bloomberg
There is another factor coming into play. The mobile workforce.
We do not need the office space that we did a few years ago. A discussion we were having, we being Michael McClure of Professional One and Tyler Webb, really brought out this point.
Office space is just a luxury that most businesses do not need. Having offices and desks sit empty regularly while ones workforce is mobile makes no sense. Add to the fact that Wifi is free for the most part, even Starbucks is going to this model, informational workers do not need to be tied to an office anymore.
Workers will be happier with the freedom. Employers will be happy reducing their facility costs. Even the coffee shops will appreciate the extra business.
The only ones fretting are the landlords and the commercial brokers.
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Tom,
I totally agree with your assessment. I wrote about this originally in a blog post at http://p1fran.com/2010/05/seven-years-of-brick-mortar/. And I wrote about it again this morning at http://budurl.com/FreeAtLast.
We are at a tipping point, the edge of a sea-change, when we’ll all look back one day and say, “Did we REALLY waste all that money on space we really didn’t need?”
What. Were. We. Thinking???
Great post, sir!
Best,
Michael
Having offices and desks sit empty regularly while ones workforce is mobile makes no sense.Office space is just a luxury that most businesses do not need. Informational workers do not need to be tied to an office anymore.
I agree, most people do not necessarily need to be in the office to work. There are people working from home, in commute, and even in coffee shoppes all over the country. Most people need a cell phone, a car, and a laptop and they can get everything done that they need!
Mobile and non-traditional workers + toughest real estate market in recent history = lots of office space…and maybe not lots of office brokers.
KS
Commercial Real Estate Software
Interesting point of view and I agree to an extent. Many office spaces are wasted with a type of business that is not as likely to use it.
I agree with all of you, independantly also collectively.My long idea has been is to create a vertual office complex one that projects a 3d model complete with elevators, office clerk. board room that displays you at a chair position, court yard ,cafe` all computer interactive. by web cam productions….sweet and groovey also…like farmville!
Nice Article Tom. The balloon of CRE debt nationally must be watched. Check out the link to an article I wrote last week on today's CRE market versus trends from the past. http://kwcommercialsa.com/blog/?p=2812