All markets change – it’s the nature of the construct. While volatile markets can be frustrating and potentially hazardous, we can hardly be angry at a thing for acting according to its nature. Conversely, we should be upset with our selves for not having the wisdom to plan for a volatile market.
One of the most important aspects of business real estate strategy is to negotiate flexible agreements that allow your business to weather the unpredictability of the fast paced market your company competes in.
RE Workplace summary of major market reports that have been published for a mid year status update:
Commercial Business Districts
Growth and absorption seems to be at its highest rate in major commercial business districts – specifically commercial business districts with easily accessible public transportation. As mentioned before, business like electricity or a river, will find the path of least resistance. In this case, easy access to transportation is a huge factor in today’s commercial real estate market. Locations without ease of access will naturally suffer a lack of talent.
Meanwhile, in the southern US, the suburbs are filling up at an accelerated rate because of business migration and the fact that large blocks of inexpensive space are readily available with motivated landlords. That means an increase in traffic congestion in a region that has not adequately planned for the increase in auto commuters – which is inversely proportional quality of life ratings.
The economy is on an obvious upswing. However, there are other, social and technological factors that are affecting commercial real estate. Businesses are not scooping up additional real estate to serve additional staffing with the same gusto as in previous up-cycles. Vacancies are not being filled as rapidly because of new working styles – like telecommuting and the continuing shrinking of personal, dedicated workspaces. It is safe to say that technology is making commerce more efficient and reducing the number of employees and/or the amount of space needed to increase revenue and earnings. Companies are investing more in technology (infrastructure, hardware and software) and avoiding long-term commitments to additional real estate if at all possible. This will keep their financial house in order and keep organizations in a position to respond quickly if their market contracts.
Outside the U.S.
While the economy is growing within the U.S., events outside of North America can affect commercial real estate decisions that impact all markets. For example China could be a major challenge because of their economic slowdown and deteriorating relations with the US Government. Another overlooked engine for our economy has been the international tourist, with nearly 70,000,000 million people visiting the U.S. in 2014. The strong dollar and flagging international economy will have an impact on this sector of the economy.
Cause and Effect Web
The business real estate market is an interrelated web of cause and effect circumstances. Many of the situations are subtle and nuanced. The long-term results, like traffic jams or talent choosing to relocate, are not always immediately identifiable or predictable. Uncertainty and random events outside of your control are the primary reasons to focus on agility and flexibility in your long-term business real estate strategy.