Stress, uncertainty still reign, but there are positive signs

Repositioning, new uses dominate commercial real estate market


A recent newsletter talked about the Fed and the International Monetary Fund seeing future growth potential close to 2 percent, rather than the hoped-for 3 percent of earlier decades, due to “structural and demographic limits on growth.” That is referencing the graying of America, definitely a trend in New England, which can affect our dynamism for new business development.

We should be looking at some of the Western European companies that got there already.

Another demographic is older workers hanging on, many part-time, thus opening up fewer positions for younger workers. However, they too are more often part-time, with little or no benefits. This segment is/are the under-employed and they are, through no fault of their own, a definite drag on the economic recovery.

If this was not challenging enough, the Fed is trying to gently raise interest rates to re-inflate the economy (think of retirees earning less than 1 percent on their savings account) without stalling out and dipping back into recession – a tricky equation to say the least.

What we are reading (and seeing if you watch TV) is increasing political turmoil: Russia and the Ukraine; Syria; Iraq; Lebanon and Israel; North Korea. The confidence in the U.S. as the global policeman is gone. And the UN is overextended.

So we find ourselves in a prolonged lull, not stagflation, but the economy is not re-inflating either. It is business somewhat as normal, but every cloud on the horizon causes anxiety in someone's mind. It is likely that only a political/military encounter would upset the apple cart and really throw a spanner in the works. But for that, we should be able to muddle through and eventually achieve stronger growth and forward economic momentum.

New England landscape

In New England, we see strong determination to keep plugging away and get through this trough in the economy. Lenders are lending, sellers are selling and buyers are buying, so we are busy on the transactional side.

The underlying sense of stress or uncertainty has us busy on the advisory side of the shop as well. While we test many metrics for value, risk and potential upside, we have seen a slightly more positive outlook over the past 12 months. Most of the foreclosures and short sales have been rung through the system (we think).

In the commercial sector, we see many properties that need to be repositioned. This is most apparent with older office properties. The demand for office space has shrunk by 20 percent to 30 percent in the past 10 years. This is not going to suddenly rebound. Companies are squeezing, and will continue to squeeze, space needs.

We have one client shrinking to 20,000 square feet from their current 36,000 square feet. Another will shrink from 30,000 square feet to 20,000 square feet. Still another wants to downsize from 1,500 to 800 square feet.

The surplus space on the market will eventually force some office landlords to choose to use their buildings for other uses. Currently, housing, especially in the in-town areas, is the easiest conversion. But this only applies to certain buildings, typically smaller ones. A 50,000-square-foot floor plate does not usually divide up for condos or apartments.

In the industrial sector, we are seeing buildings morph from manufacturing or warehouse to fitness clubs or indoor sports and batting cages. It is an interesting time. The reuse of some existing buildings will be a big part of our business in the next few years.

Bill Norton, president of Norton Asset Management, is a Counselor of Real Estate (CRE) and a Fellow of the Royal Institution of Chartered Surveyors (FRICS). He can be reached at

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