2007 Revisited - Prediction 3

2007 Revisited - Prediction 3

So, maybe Prediction #3 will be my personal inflection point
for prognostication! The first two did not go so well (see 2 previous blog
posts), so let’s dive right in to prediction #3.

The third prediction made in 2007 was as follows (drum roll and
anticipation once again):

Prediction #3 – Functional obsolescence would become a very real driver for commercial real estate development nationwide with 97 billion s.f. of new construction needed.

Existing U.S. Inventory 63 Billion s.f.
Amount considered to be functionally obsolete and in need of replacement 44 Billion s.f.
Amount of incremental new space needed 53 Billion s.f.

The idea here being that new and replacement construction needs would be in excess of the entire existing inventory! Well, this one certainly feel ambitious! What’s the verdict?

The Verdict - Functional obsolescence is real. You can see it every day. As price compression occurred, only the best product moved. Obsolete housing, no matter how cheap, sits on the market as buyers purchase homes with modern amenities and floor plans. Why lease class B or C office space when new class A space costs almost the same? In our business at S.J. Collins, both of our new developments involve demolition of obsolete structures in favor of new development.

How did I do? – Right on! Look for this trend to accelerate.

I think I have this one right. The numbers seem huge but I think they have validity. Think about the fate of the 1960’s ranch home. They are almost all being razed or renovated. Why would commercial space be any different? Things change! Industrial space requires new dimensions for freight, retailers seek new formats. Do you have an old empty Wal-Mart in your area? How about a double drive through Krispy Kreme? Don’t even talk to me about the windowless mall on the other side of town. Technology changes, demographics changes and the products being sold change. Ok, so now I am 1 for 3. That’s a good average in baseball, but it will get you fired in Commercial Real Estate. I’m not done yet! Three more to go. Stay tuned next week for prediction #4. Let me know what you think via Twitter @ RetailJeff.