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Dick Tracey and the Commercial Real Estate Crash of 2020

Dick Tracey and the Commercial Real Estate Crash of 2020

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Published by T M Copeland
Essay discussing the potential impacts of wireless broadband technology on commercial real estate.
Essay discussing the potential impacts of wireless broadband technology on commercial real estate.

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Published by: T M Copeland on Dec 04, 2009
Copyright:Attribution Non-commercial

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12/03/2009

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It is easy to predict that the internet revolution will have profound impacts upontraditional communications industries. Exactly what those impacts will be is a bit tougher question to answer but it is possible to make a range of projections that will encompassall the likely futures.Far less foreseeable, much less predictable, are the impacts this communicationsrevolution will have on other industries and professions. Let's not be daunted by thismisty view of the future. Let's take a crack at some of it.I suspect that the combination of new technologies creating new operational possibilitiesand the attitudes and behaviors of people to whom all this "Dick Tracy" technology is thenormal state of affairs will result in very real changes in commercial real estateinvestment and development. Somewhere between the ages of thirty-five and forty thereis a fairly well defined line of demarcation. On one side of that line are folks perfectly atease with the use and capacity of the new technology. These folks can, almost, intuitivelyunderstand how a new electronic device or service works because they have grown upencountering new electronic devices and services on a regular, routine basis. On the other side of this line, the over forties, is a population largely unfamiliar with anduncomfortable with these devices and services. Not that the over forties don't use many of them. Indeed, some of these devices andservices are so integral to our lives it is hard to imagine how one conducted business or social activities before they became ubiquitous. Even so, far fewer of us in this cohorthave a sort of "second nature" relationship with the current and emerging technology, asdo those in the first group.For one thing our notions of privacy and security are less compatible with the technologythan our younger brethren. For another, we are used to the spaces and accoutrements thathave been developed for our business and professional lives and they form a comfortzone of which we are fond.These biases are, to a large degree, not the same with the younger set. They havedifferent notions of privacy and security and never formed the emotional attachments tothe spaces of commercial real estate the older set have done.The entire notion of the power and prestige conveyed upon the holder of the "corner office" is not so impressive to the young professional. He or she is more tuned in to the power and the prestige of the possessor of the latest and greatest technology. For that person has the power to change things, to get things done. The corner office guy isreduced to the fellow that asks for the information or allows the project. The connection between commercial real estate and emotionally satisfying prestige has been broken inthe younger crowd.Add this attitudinal change to the increasing mobility of files, records, productioncapacity and everything else the office itself becomes less of an essential forum for exchanging information and producing cooperative work. Many handheld "smart phones"
 
now have the capacity to be a station in a videoconference allowing full video and audioand data communication between multiple parties. Those same devices, or others no less portable and only slightly larger, provide all the informational files, research capacity andother production applications needed to be a fully participating collaborator in almost anyoffice function without being on the same continent as the rest of the participates.I have to believe this combination of technology and cultural changes will have a profound impact upon the demand for office space.In a similar vein, there are many industrial processes that do not require a centralizedlocation to work together to build or assemble a tangible product. Not all industrialoutput, probably not even a large minority of such outputs, will lend themselves todecentralized manufacture and assembly. However, enough of them will to have animpact on the demand for industrial real estate.Retail is, perhaps the most interesting. I suspect that most retail trade will soon beconducted via the web. Increasingly, retail trade that does not involve products that mustfirst "romance or "seduce" the buyer are easily sold over the net. That is why internetretail sales are growing so much faster than traditional retail that, in some instances, isshrinking.If the "romance" theory is true, you should expect for there to be a dramatic reduction indemand for traditional retail space. Any such reduction in demand will strand enormousamounts of capital in unusable shopping centers and malls all across the country. Indeed,all across the world. Only the shopping that will still retain a primarily "social"experience will provide for healthy, traditional retail trade. High end fashion, someautomobiles, high end jewelry, certain electronics, specialized recreational destinationcenters, think Bass Pro Shops, that sort of thing will still be enough of a social experienceand enough of a romantic experience to justify a traditional, sort of, store.Again, there is a generational, not gender, divide on this. Older, traditional shoppersenjoy the experience and will be uncomfortable and reluctant to let the mall go. Younger consumers will not be attracted to the traditional shopping experience unless there issomething perceived as very special to be gained from the effort. This divide will resultin an ever decreasing demand for traditional retail space as more and more shopping goeson the web and away from the store.So, assuming we do someday emerge from the recession that is now, officially, over,what happens to space demand? My belief is that the best case will result in flat demand.This will not be so bad for the existing industry but will put a severe damper on demandfor new development and construction. However, the negative impacts on demand for space could be far more pronounced. If so, we could find ourselves with an enormousamount of capital stranded in the form of buildings for which no one has any use.Should the demand decline steeply due to technology and changing attitudes toward theshopping experience, this is, of course, really bad news for owners of existing centers.

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