We all know about fundamentals and supply and demand. But the supply and demand that many real estate investors seem to focus on today is capital. They count on more capital to make things better. They hope if capital comes back into the markets we can start doing more deals again, prices would increase in the augmented trading, and the cycle would ramp up. Bad deals transacted near the last market peak might have a chance, if they could be bailed out by appreciation.
In fact, the really smart market timing players did focus on capital flows—they started selling when markets began overheating circa 2005, and they are ready to make deals with their dry powder now. But the smart money realizes at the bottom of the cycle they need to focus on the traditional supply and demand drivers which dictate property revenues--higher occupancies and rental rates. They are wise to pay attention to the fundamentals that signal what tenants are going to do.
Apartment investors figure their time is coming sooner for improved revenue outlooks than for players in other sectors. They figure pent up demand from doubling up echo boomers, aching to have their own places, will push occupancies and rents once the jobs picture improves. Makes sense, but where are the economic drivers to kick hiring into gear? It hasn’t been talked about much, but the BP oil disaster is bound to dampen jobs numbers in coming months. And state and local governments will continue to pare spending, which ends up decreasing public employee work forces as well as other jobs. We keep hearing about new clean energy jobs, but China can and is producing solar panels and windmill parts—at wage rates well below what our workers will accept. And we keep worrying about a double dip, but it looks more likely that we will endure an extended lackluster period where companies maintain profits through “productivity” gains—that really means not hiring much and doing more with less, while our major industries get out competed globally by countries with lower living standards and compensation rates.
Office owners should be especially concerned about the demand side. Companies realize they just don’t need as many people working under their roofs. The days are over when every executive had a secretary. Heck the days are over when whole departments have any administrative help. Filing clerks gone, receptionists have been replaced by voice mail, and who needs a girl or boy Friday when you have a blackberry or I-Pad? There’s one company I’ve been working with recently where neither the CEO, COO, CFO, head of transactions or head of marketing have any admin support. These are executives who 15 years ago each had at least one secretary to do their bidding.
Then there are the companies that used to have regional offices minding local business. How many companies do you know who still claim a regional presence, but their executives work mostly from home? Do you think companies will suddenly find the need to lease up new space in regions when these arrangements have been working just fine without the added overhead?
On the retail front, the consumer binging that we all got used to is done and basically dead. A combination of wrecked balance sheets and financial regulation forces lenders to get rational about credit practices. People with underwater mortgages and already unpaid credit card balances on maxed out cards aren’t going on shopping sprees anytime soon, especially when the jobs market continues to look so tenuous.
We wonder why the capital markets haven’t loosened up and won’t get untracked for some time to come. Tepid demand for space will tell the story and that’s what we all should be focusing on.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
