Commercial real estate: more than square feet and rental rates

The sector encompasses a lot of territory

At lunch several weeks ago, a colleague I had not seen in quite a while asked me how I was able to write two columns, month after month, year after year. First, the editors give me a fair amount of latitude. In 20-plus years, I have only had two articles rejected. One was deemed too negative (essentially keep your cash/powder dry and wait out the cycle) and the other rambled too far afield. Regardless, it is challenging to find new topics to keep this column of interest to such a diverse field of readers.

Ostensibly, my focus is supposed to be “commercial real estate.” But that encompasses a lot of territory.

There are five asset classes or sectors in commercial real estate: office; retail; multi-family; industrial/high bay, including distribution; and commercial, which includes hotel, hospitality, restaurants, etc. One can only cover so much, well. This is especially true in New Hampshire and north of Boston, where the markets are so thin that specializing in just one sector will eventually lead to “dry spells” without enough activity to keep bacon on the table.

In addition, in smaller markets (“secondary” and “tertiary” in the nomenclature) one must develop strong and lasting relationships with key clients in order to ensure a “pipeline” of  repeat business.

In our world, that includes companies looking to lease, as leases come up for renewal on specific dates. It also includes companies that want to buy or build. They often need more space in the up cycles and less space in down cycles. It includes medical providers who need sophisticated space, well located, with lots of parking (read: expensive). It also includes investors who look to buy properties for the cash flow and they need brokerage services, sometimes permitting a change of use, etc.

Our specialties have been (and are) office, especially medical office; high bay/industrial/manufacturing/warehouse; specific site searches, such as branch banks, medical clinics, utilities, etc.; development consulting; and the not-for-profit sector, such as hospitals, schools and colleges that do not have regular and frequent needs and thus choose to engage us periodically.

This is an interesting and challenging mix, one that is mostly still enjoyable. But after 40-plus years, some of our long-term clients are retiring. This has created a new line of business calculating the “net” after a full sale of properties held for long periods with low levels of debt and low book values after years of depreciation – and, of course, federal and state taxes.

But we do not operate in a vacuum. One has to keep an eye on the regional, national and global economies to understand cycles and economic conditions. This makes for an extensive reading list of periodicals, books, newsletters, blogs, etc.

A trip to China last spring was a real eye-opener. (The Concord chamber is going to run its China trip again next spring – if you have any interest to go, it is amazing and very affordable). Seeing factory yards piled high with containers of product waiting to ship and ports with idle ships impresses you with their capacity, which currently seeks more global demand.

Closer to home, the shift of manufacturing to the Sun Belt and the Gulf Coast is telling as well.

Here in New England, we have only recovered about 30 percent of manufacturing jobs in the “Great Recession.” This needs to be a priority for our economic development strategy. Retail and service jobs just don't cut it.

Besides, retail is shifting slowly but surely. Internet sales are increasing (even I buy things online). So, to give good counsel, we have to fully understand our clients’ core business, as well as the local, regional, national and global patterns that will impact their decisions near and long term.

Commercial real estate is more than square feet and rental rates. It is all about how facilities’ decisions impact and enhance the core business. Space and occupancy costs have been rising, so they no longer can be ignored (no cost can be ignored in 2015!). So, ours is a holistic approach. It has to be.

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

Categories: Real Estate