Industry experts are starting to take heed as disruptions from the pandemic and changing technological needs are hastening the demise of commercial real estate developments.
By Kevin Williams
In 1931, glass bottles of sparkling soda began rolling off the assembly line at the Coca-Cola bottling plant in downtown Indianapolis. It’s unlikely that the factory’s architect gave much thought to the possibility that shifting consumer habits would make the glass bottle a relic within a couple of generations.
Instead of slipping into obsolescence, the factory went on to have multiple lives. After the Coke factory closed in 1971, the building was briefly used to house Indy 500 racecars, then spent decades as a school bus garage before becoming a 139-room boutique hotel anchoring a new entertainment district last year.
A century ago, developers didn’t give the future much thought, but today, they don’t have the same luxury. A combination of pandemic disruptions and constantly changing technology has brought the hazy, distant horizon much closer.
As a result, a growing number of projects are racing against the clock as profitability and utility are squeezed into the ever-shortening life of a commercial building. Statistics illustrating the acceleration of building life cycles are scarce, but experts in the industry are starting to take heed.
“The cycle of changing is becoming shorter,” said Jefferson Duarte, associate professor of real estate finance at Rice University. Projects that developers once could have collected rents on for half a century or more don’t allow that anymore.
“Twenty years ago, we didn’t think about it,” Professor Duarte said. There was just an assumption that an office building would still be functioning a century later.
Some still are. Few developers think the Empire State Building is going anywhere soon as it approaches its centennial at the end of the decade.
A premium spot or landmark status can overcome obsolescence: Areas like Midtown Manhattan or Chicago’s Magnificent Mile seem likely to remain coveted spots where short shelf life would not be an issue.
“You could build a barn in Midtown Manhattan and you’d fill it up, because that is such a prime location,” said John Gallander, an independent real estate consultant in Costa Mesa, Calif., who has overseen commercial development portfolios throughout his career.
Source: Read Full Article