Column: Commercial Real Estate Information Overload
By Allan Murphy
Sentinel Business Columnist
There is little doubt that we live in the information age.
I’m sure that, like me, everyone is bombarded by information hourly, daily, and weekly—our mobile devices deliver a constant stream, and for some of us old school folks there are also daily newspapers, weekly news summaries, and in my world of commercial real estate, an endless supply of market reports, macro-trend white papers, and other real estate related research and economic news.
Digesting the sheer volume of information is like trying to drink water from a fire hose, and for sure the biggest challenge is quickly identifying the important info for my use in understanding the market and providing appropriate guidance for our tenant and landlord clients.
Spread out on my desk right now are eight different information documents that include our chief economist’s “Friday Market Insight,” a weekly one-page newsletter, two corporate research “white papers,” one regarding the impact of office space on employee productivity and the other on what this age of “disruption” means for tenant decision making and demand.
There is also the second quarter 2016 Fairfield County Office Market Report, and a 2nd quarter U.S. Capital Markets Report (“for the intelligent investor”). Next up is a research paper on the new lease accounting standards of FASB, a paper on “cross border capital flows related to an aging world population,” and finally, a recent presentation done for a “Leasing Advisory Services” pitch to a prospective tenant.
There is little chance that I can or will digest all of that and still do my primary job of working with tenants and landlords to identify and negotiate lease and sale transactions. And yet much of the information surrounding me on the desk is interesting and at least some of it is useful.
For example, how about the stat that the home ownership rate in the U.S. has now declined to an all-time low of 62.9 percent (dating back to 1965 when the Census Bureau started tracking this information). The peak was 69.2 percent in 2004, and it was 63.4 percent a year ago. Over the last 12 years more than 9 out of every 10 net new households created are renting rather than owning. Declining home ownership accounts for two thirds of this rental demand and natural new household formation (e.g., young adults and new immigrants forming households) accounts for the other one third. Still, that is an amazing statistic that bears repeating: over the last 12 years, 92 percent of new households have elected to (or been forced to) rent rather than purchase a home.
The expectation is that the home ownership rate will start to level out as the millennial generation (the leading edge of which is in its early 30s) becomes more financially stable, starts families, and becomes priced out of or less desirous of urban living. Ok, interesting information and speculation, but what does it mean, if anything, for commercial space in Greenwich, Conn.?
Right now, central Greenwich is highly desirable for office tenants and residents alike, and that probably won’t change, as access to the train station and to centrally located restaurants and services seems increasingly fundamental to today’s lifestyle.
However, my personal prediction is that, as the millennial generation forms families and seeks to educate children, there will be slowly but steadily increasing demand for homes in towns and cities with great school systems—and we are fortunate to be one of those.
It could take 10 to 20 years to unfold, but I expect increasing demand for homes and for the retail and office spaces that support that population—which makes local commercial investment an excellent long-term investment. (Note: thanks to Robert Bach of NGKF for the statistics and insight on home ownership and millennial trends.)
Allan Murphy is a senior managing director at the commercial real estate services firm Newmark Grubb Knight Frank. He has specialized in the Greenwich and Stamford markets since 1996.