There’s ‘good’ technology and ‘bad’ technology
Plus, what’s on the commercial real estate horizon for 2016?
Drones – these are disruptors. They have been used in commercial real estate for years as well as to survey large farm, timber and ranch properties.
They have been used to survey very large, flat roofs, such as at 1-plus million-square-foot warehouse and distribution centers. At a recent Counselors of Real Estate meeting, we saw where a consulting engineer used a drone with a video camera to examine the exterior walls of the Empire State Building to assess the caulking, mortar joints, etc. This cost about $6,000 vs. the traditional approach of putting window-washing staging over the side, which would take a week or more and cost three or four times as much.
Like any technology, as the costs come down the applications increase dramatically. A year ago, we had a similar presentation on 3D printing. Many applications are only dreamed about but they will come to fruition quickly.
I just got off the phone with a broker in Rhode Island. I had driven by a site he was marketing. We both brought it up on Google Maps and were able to have a useful conversation while being 120 miles apart.
These are examples of “good” technology, improving productivity. But there are “bad” technologies, or at least bad applications of them.
The other day, 79 emails came into my box in 60 minutes in the attempt to set up one five-minute phone call! Working with a not-for-profit group, I agreed to craft a letter of intent to lease space. But in the next 2 hours I received over 30 emails with suggestions of what should be in it. Among professionals, those we deal with on a daily or regular basis, these communicators are usually succinct, focused and most often to the point. However, when the circle is widened it often gets pretty chaotic.
Now that 2016 is here, a presidential election year no less, not to mention a leap year, what do we expect to see?
Interest rates will move up some, but not a lot. Alas, after being forcefully suppressed for so long it is hard to ascertain what impacts this will have. Personally, I think that once the cork is off the bottle (inflation), it may jump more than the experts think – 1 percent or 2 percent will be manageable, but more than that might create some unexpected consequences.
The commercial real estate landscape has not changed much –
still plenty of dollars chasing too few quality deals. Short lease terms do introduce some risk. And construction costs are rising, especially electrical, HVAC and new site work.
At some point, when the interest rate switch is flipped and the cost of borrowed money goes up, real estate values will be impacted. Specifically, cheap money allows asset prices to go up. More expensive money either stops the rise in asset values or pushes them down. This is not a precise formula, but there are likely to be some properties and some regional markets that will deflate. How much and how fast is the $64 question.
So for 2016, once again, more of the same for at least the first half of the year, and most likely longer. So noses back to the grindstone!
Bill Norton, president of Norton Asset Management, is a Counselor of Real Estate (CRE) and a Facilities Management Administrator (FMA). He can be reached at firstname.lastname@example.org.