in real estate happen so slowly we can miss them.
Watching price trends in the commercial sectors is like
watching a turtle race.
Before much happens, we lose interest, leave the room, get
breakfast, make a few phone calls, and forget that we were watching
anything. Eventually one
turtle wins, but no one is there to see it cross the finish line.
To see price
trends for real estate, something like time lapse photography would
be a good idea. Leave
the camera on for a few decades, come back, and see what you see.
If you do,
what you see when you look at industrial real estate in the U.S. is
something familiar. It
is what you might have known if you knew that manufacturing in the
U.S. has been in decline for decades.
With manufacturing waning, prices for industrial properties
have been in a long, slow decline.
The peak for industrials was the 1950s.
That was when big industry built so many of the big plants
that now stand rusting.
Profits from industrial real estate now are made mainly where a
developer is able to convert an industrial building to something
else: a mill building to an apartment or a one-story suburban
building to a health club, a recreation center, a school, or a
Biotech laboratories work in some places as industrial conversions.
Because of the large suburban sites they afford, industrials
are a good place to knock the building down and start all over again
with a big apartment or a Home Depot.
Some industrials work well as homes for the small businesses
that need a few thousand square feet to park their trucks or buses,
store equipment, or do niche manufacturing.
But those are the exception.
To know the long story of industrials, you need only to look
at how median rents have flatlined.
The national median industrial rent is the same now (about
$5.00 per square foot, according to CoStar) as it was more than ten
years ago. To stay the
same when the cost of everything else from food and houses to cars
is on the rise is to be in real decline.
The story of
industrial price trends is not unexpected.
What is not so well known is that the same trend is under way
in the other commercial sector that provides us with our work
places. Office buildings
are a big symbol of our economic success.
We build them to tower above us.
But for more than a decade, like industrials, they have been
in decline as well.
The proof is
in what you don’t see: new buildings.
Since 2001, Greater Boston has expanded its inventory of
office space by only 5%.
Meanwhile, vacancy has risen to 11% and stays there stubbornly
through the economy’s ups and downs.
Rents at many buildings are lower now than they were decades
ago. Prime buildings
with double-height marble lobbies and high-quality build-out may
sell for less than they did in the 1990s.
Owners hold them off the market, waiting for a price surge
that seems never to come.
Office prices were hammered down once in 1990 and again in
2008. So were prices for
everything else in the commercial sectors – retail, apartments, and
industrials. But offices
haven’t shown much bounce-back.
Apartments and retail are out of the doldrums.
But offices lag.
We see the familiar sight of cranes above the steel, putting up the
new towers. But with a
few exceptions, what they are building is what is in demand.
They are building apartments, not offices.
The fact that
both sectors that give us our workplaces are in decline may say a
great deal about work itself: that we have less of it.
Unemployment stays high.
In spite of our efforts to stimulate, by cutting taxes during
the Bush years, by stimulus spending during Obama’s, we can’t put
the people who are out of work back to work.
We are too productive.
It takes fewer of us to deliver what we need.
Apparently, we just do not need all those work buildings when
work itself is in decline.
We have plenty of stuff – bigger houses, plenty of cars, more
food than we know what to do with, and closets stuffed with clothes.
It just takes less of our labor to make it.
That makes for problems in itself.
people who want to work but who may be out of work forever.
And problems for the people who own the buildings where work happens
less and less.