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Effect of technology on commercial real estate in a recession
Although there seems to be an endless supply of other shoes to fall into the economic abyss present, there seems to be general consensus that the commercial real estate will have a significant impact. The shoe that could end up kicking commercial real estate more below and is relatively unknown or simply not believed to be about technology. Developed countries around the world, except a few, have never gone through this cycle potentially devastating to the amount of technology we have at our disposal. What the technology allows greatly affect the duration of the recession commercial real estate and its impact on the overall economy.
With our daily dose of eye skipped dismissals, the question of principle on the agenda each firm is how to reduce costs. When looking to reduce the cost of the first question is typical of people who can be cut and how much of a reduction in productivity be tolerated. But with all this technology, it is now possible to reduce costs and maintain the same amount of productivity. This was not a viable option in recessions earlier, but this time around the companies can start sending people home to work, which is possible thanks to strides in communication. People have been for years, teleworking, but with the great expansion of communications technology along with a down economy, reduction of choice between cutting costs a group of employees and cut in a building rented flats has become much easier. The last time we saw a boom in telecommuting was the September attacks 11 and the catalyst was the fear of travel and an unstable economy. Sales of audio and video conference went off and the use of technology was all the rage. The big problem then was that technology was a bit harder to use and all returned to their old ways of working after the crisis.
The difference now is that technology has come so far and the new catalyst is an economy of accident that, in my opinion, will be an even stronger catalyst that 11 September. Fickleness and discomfort around the use of basic technology has been operational issues. I recently spoke at a conference about it and I made a very simple question. Has anyone sent an email to the person in the office next to them? Everyone looked around like a trick question, but the reality is that there is difference between sending an email to the cubicle next door or around the world. This is now the same for almost all types of communication, including voice, video, text, instant messaging, etc, and connect them all in 2009 is called buzzword unified communications. In telecommunications arms race between the Telco and cable companies, has been a great boost to the mega bandwidth for the end customer to return to own them, not realizing that they have made millions of households viable for high-speed distance. In addition to the end user have the ability, most of the applications that employees need access to the company have moved to secure Web-based applications that can be accessed via the Internet through these super networks. With the real media which is so robust, worry largest employer on sending an employee home is the possibility of loosening and loss of productivity. However, there are very sophisticated systems available to continue the employee's progress and activity from a distance who can solve this problem as well. Although this is not feasible for all office workers who are authorized to make this order, being more productive, the less water cooler conversations, coffee breaks, lunches and long term. There is an argument that the employees lose some social aspects that connect to an office, but employees will place less emphasis on long journeys without waking up early-ups, and end up being happier with all their work.
So what does all this have to do with the real estate market? In short, with all of the offer in the field of technology demand for physical office space will be reduced. The office space has always been a kind of property that is less desirable because of its susceptibility to economic pressure. Now more than ever, companies are looking to cut space and get lean, and office space will be a hit even harder. With more space market, rinse and repeat and you will gross over space. The excess space is deflating finish reducing rental rates and cash flow and reduction market value of properties. If the past 12 months have shown us anything, considering past trends do not help us in this market. Purchase of real estate investors business trying to use past trends to future improvements are going to get crushed in the short term. Why? Because even after the economy recovery companies are not going to take an expense for the space they have done so without through telecommuting. The Gartner Group last estimate was that there was 137 million teleworkers around the world, "This growth of fungi that businesses get more information about the benefits of teleworking and its highly profitable return investment, and the proliferation and use of employment exchanges and virtual online recruitment, "according to a report Innovisions Canada.
Thus that is the argument of office space, but what else is going to affect the technology? At the retail level, a whole generation that is getting used to make their lives online and that includes the purchase of products. People born in the late 60s and the 70s are a generation that has one foot in the last generation brick and another in the future generation of clicks. If I look at myself, would say there are some things I'm not comfortable buying online, but my younger colleagues and friends have no problem buying everything you need online. It's a generational shift and goes to add tension in the retail property market during a cycle economic decline. Take, for example, Blockbuster and Netflix major initiative to follow the online ordering of movies. Services are now shipping the DVD in your home without setting foot in a store. Many of the major cable and satellite industry are trying to make viable the discharge of their 1000 titles Cable and satellite boxes, and so far on demand service are at the forefront, but the lack of volume of titles. On another front, Telco are developing a solution more robust broadband intellectual property, and in the case of Microsoft who are trying to enable downloads right on your Xbox entertainment system through the web. How many empty stores and other stores Blockbuster Video is going to push on the market? Okay, so that digital media and could argue that it is an exception because of the ease, but the technology is allowing the laws of many other services to be delivered directly to our front doors. Are people still going to go out and buy? I would say yes, because it seems that many people have become a pastime of shopping (to better days), but with our youth increasingly introverted and more used to everything being within reach, perhaps less than before on a per capita basis.
Technology efficiencies Mobile is not going to destroy the office space and retail space as a whole, however, it is important to understand that in an economy where the technology is well as a down economy, are becoming far less necessary. Commercial real estate has always been a good investment alternative, but the last 12 months have shown to invest in such properties has great experience and most importantly, an open mind about what is to come to measure future cash flow and value. Betting against technology has never been a very sound investment strategy and this is definitely not the time for anyone to put their heads in the proverbial sand. Maybe you realize the history of the narrow mentality of the man who opened a store typewriter because I thought that computers were just a fad for children with kernels are facing?
Copyright: Dominic Mazzone, Regent Global Funds 2009
This article was written by Dominic Mazzone, Managing Partner and Background of Regent Global Funds. This article and others as can be seen in http://www.investingsymposium.com which is part of Regent Global Funds Network.
Regent Global Funds, www.rgfunds.com is a fund of investment alternative that offers its participating investors and asset backed investment through asset based lending. Fund Managers Regent Global Funds have an expertise in commercial real estate loans and created a successful alternative investment vehicle that is diversified across this structure.
They separate themselves from other managers of investment funds by person of his own money side by side with their investors in the fund, the creation absolute structure of accountability. Sunday Mazzone has written about the need for this type of accountability in an article entitled "Managers Funds should be accessible and personal investment. "
About the Author
As a Managing Partner of Regent Global Funds, a private equity and debt fund, Dominic Mazzone brings a track record of success and innovation to his current position as a fund manager with his experience in the real estate and lending business. His experience in real estate led him to being responsible for maximizing revenue through strategic best-use practices, as well as property rehabilitation in a portfolio of investment properties within the U.S. Dominic has been involved with development projects throughout the U.S. including California, Arizona, Florida, Kansas, and Hawaii, and is currently part of a consortium of investors in Scottsdale, AZ, developing an 80-acre site for an exclusive enclave of luxury homes overlooking the Estancia Golf Course. Dominic had his start in the lending business underwriting loans in Canada on properties that were precluded from conventional financing. This led to similar lending opportunities in the U.S. and the eventual formation of Regent Global Funds in Chicago.
Formal education includes Mesa College in San Diego and the University of Southern California in Los Angeles.
Dominic is a general partner of Scottsdale Partners LLP, which is involved in real estate development in Scottsdale, AZ, as well as Waikoloa Partners LLP, a syndicate of real estate investors in Hawaii. Dominic sits on the advisory boards for the technology companies Voice Cloud and Nile Source Outsourcing.
Eric Schmidt on technology, innovation & the global economy