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Real estate analyst: adapt or perish

Anne Wallace Allen 2015In the unlikely event that anybody in the real estate business  has been sitting back and relaxing as the local economy churns with unparalleled growth, BOMA’s real estate symposium February 14 should serve as a wake-up call.

The Building Owners and Managers Association of Idaho meeting, an annual event that draws hundreds to hear economic outlook summaries from the leaders in the commercial real estate field, was heavy on hope and celebration, but also laced with realism about the titanic changes ahead.

Tommy Ahlquist, the CEO of the Gardner construction company, described the conditions under which his company works as a “rolling wave cycle.”

“Recession, recovery, expansion, contraction … we’re probably living on a little borrowed time,” said Ahlquist, who estimated that Gardner invests $34 million each year into Idaho with its construction projects. “We’ve had an excellent recovery (from the Great Recession), but it’s a record recovery. What are we doing to prepare for what we know is going to cycle?”

That was the question posed by the event’s keynote speaker, Chris Lee of CEL & Associates Inc. in Los Angeles, as well. Lee described this era as “the most transformative time, literally, in the history of the industry.”

Spurring that transformation:

Technology. Lee said the goal of technology companies like Apple is to create virtual office buildings, where people will go to work over the internet. “Don’t be surprised,” he said. “Technology firms are going to take over a lot of aspects of real estate.”

Robots. These machines are starting to be used in the construction of buildings, with two such projects completed in China, Lee said. They’re 30 percent faster and more efficient than human workers, he said.

Data. Lee envisions a scenario in which Google acquires the huge global real estate firm CBRE in order to control its data and customer connectivity. “It’s all about the control of the data, the control of the customer, the ability to do transactions,” Lee said. “The point of this is the competitors you are used to are not going to be the competitors who are going forward tomorrow. Google is a prime example of that.”

Green construction. Lee said there is already a design and a plan for a building that consumes its own smog and generates its own power. Green mandates will only become stronger in an industry that consumes 70 percent of the electricity in the U.S., he said, as Congress passes national building codes that make it unlawful to sell a building that doesn’t comply with green standards.

“They are making the real estate industry the energy czar for America,” Lee said.

Flying warehouses. If successful, this Amazon-led foray into space could reduce the mail-order giant’s bricks and mortar footprint, and that of others in the field.

Departures. Lee predicted that between 25 and 30 percent of r.e. firms that exist today will not exist by 2025 as founders retire or leave, companies consolidate, and people leave the business altogether.

Women. Their influence is expected to grow in coming years, until they make up about 40 percent of the C-suite positions within real estate firms, said Lee.

“You’ll have to have women in leadership positions if you’re going to compete for tenants and capital and the ability to do things,” he said.

HR directors. The trend of HR directors making site decisions, already well underway, will grow as human resources directors increasingly participate in lease negotiations and space design. Companies want to attract the right employees and help them be as productive as possible, and giving HR a seat at the table will help them do it.

Other factors in the upcoming transformation: the internet of things; housing affordability; the rise of the independent worker; shifting consumption patterns; the emergence of multi-purpose real estate, demographic and cultural shifts, disruptive technologies, the abundance of capital, and dozens of other looming changes. And that doesn’t even include the various generations and their expected demographic imperatives.

Like Ahlquist, Lee thinks things might be approaching the place where they’re as good as they’re going to get, at least in this cycle.

“Nobody believes the upturn is going to continue,” he said. “We are at a peaking place, and I think we’re going to see some changes ahead.”

What to do with all this? Lee had a few suggestions for the commercial real estate world, none more specific than “be prepared.” Commercial real estate executives are going to have to be smart and creative to survive the rolling waves of the next few decades.

“If you are going to do well, recognize where you are on the cycle and develop the strategies necessary to move ahead of that curve and avoid the downturn,” he said. “If you assume business today is the same as it will be tomorrow, you will experience the downturn.”

Anne Wallace Allen is the editor of the Idaho Business Review.

About Anne Wallace Allen

Anne Wallace Allen is the editor of the Idaho Business Review.