MENU

3Q OUTLOOK: LAST DECADE’S PLAYBOOK WON’T WORK

www.shanwalt-1-copy.jpg

The weather is turning cooler, pig skins are on the TV and it’s almost time to turn the page on 2013. Time Flies! This quarter’s commentary focuses on a trend that I have been a part of and witness to, but couldn’t have fully explained until I read a blog entry by Scott McLain, CCIM. Scott is a long-time friend of our firm, and is the Managing Broker/Owner of Coldwell Banker Commercial McLain Real Estate in Huntsville, AL. Scott is an Alumni of the Harvard Graduate School of Design. This past summer at a reunion in Cambridge he attended a presentation by Ray Torto, the Chief Global Economist for CBRE. Here is an abridged version of Scott’s blog from September 30th:

“New generations of workers have different attitudes about work, personal time, money, transportation, and interaction. We see the individual office fade in desirability to the collaborative space. We see the corporate office park fade in desirability to the more connected urban scene with extra – work opportunities for engagement. We see younger workers opting for less pay and more time, seeking greener and more fun and connected, more social environments. Downtown and urban settings, recently passé’ and moribund, are now the hip and cool places to work. Edgy, sketchy, rough places are more desirable than sterile “Class A” work environments. Workers want the hip, the cool, the engaged.

Employers are hearing this message. Recruiting to staid and “corporate” environments and communities is harder these days. Companies that are hip and cool, that have active after – hours scenes, that have walking and playing opportunities, that have more engaging physical environments, are where these young workers want to be.

Ray Torto explained this in a work context that employers now are recognizing that they seek productivity, and that productivity is influenced, of course, by productive employees that demand interesting environments.

With statistical data, Ray demonstrated that the intersection of Congress Street and State Avenue in the central business district (CBD) of Boston, the Class A and finest office environment and historically most successful sub – market, is suffering. The new competition in Boston is the Innovation District, or Seaport, a formerly downtrodden and challenged environment. The data show that the Innovation District enjoys a substantially higher occupancy of spaces than does the historically premiere CBD. This is a notable change.

Location, location, location may be the adage, but the definition and desirability of the location is now driven by the employees. Employers know that they must locate where they can attract employees and where they can expect the greatest productivity. This environment may no longer be the CBD, or it may be, but it may not be the area that has been the historically been the “best area” or location. The area for the best productivity is no longer determined by the bosses, but now it is determined by the employees. This is a sea change.

Ray offered a related closing point that is worthy of understanding and adoption. He indicated that the greatest risk to existing commercial real estate is obsolescence. Consider the classic “Class A” office space with a multitude of smaller offices around the perimeter and support space in the center of the building. Is this building still relevant for many office users? Users want more collaborative, interesting spaces, close to other unrelated support uses like restaurants and coffee shops and parks. What would appear to be a fine and serviceable office property could be a white elephant, with few suitors.”

Commercial Real Estate changes at a snail’s pace, but it does change.

I recently had an experience echoing this trend. We were marketing an office building near Railroad Park. Multiple calls came in from employees from a specific firm inquiring about rates and terms. Yet neither the owner nor his representative called on the listing. It turns out the owner wanted a new building but didn’t want to leave his current area of town. After multiple attempts by the employees to cajole the owner into touring the building, he eventually did, he liked it and we agreed to terms. Unfortunately, due to their parking requirements the deal eventually died. Nevertheless, this shows the power that employees now enjoy.

When I began my career in 1996, my boss shared a trick with me, which accurately predicted the outcome of an office space search 80% of the time. It was simple; the owner would end up choosing the office building closest to his/her house. Now I’m afraid we’ll need to find a new trick (maybe a survey monkey sent to the staff?).

To be a great real estate investor, you have to dig for emerging trends and changes. Last decade’s playbook is not a reliable guide for future success. At Shannon Waltchack we try to question our assumptions and allow emerging changes to inform our investment decisions. Plus, its always fun trying to figure out the future.

We hope you have a wonderful Holiday Season and have ample time to enjoy your family.

photo--9--copy.png

Derek Waltchack

To be a great real estate investor, you have to dig for emerging trends and changes. Last decade’s playbook is not a reliable guide for future success. At Shannon Waltchack we try to question our assumptions and allow emerging changes to inform our investment decisions. Plus, its always fun trying to figure out the future.

Share This Story

by Suzanne Echols
10.21.2013