Realty Check

Office Space

In reporting about the potential 38 billion dollar bid for Equity Office Properties Trust by Cerberus Capital Management and others, I was struck by a tiny dash of concern, well below the radar, in the office sector as a whole. I was doing some background reading on the office sector’s 2006 performance, and in a Colliers International press release I came across, the real estate services provider noted, “Commercial real estate will feel the strains of corporations needing to be flexible, with tenants increasingly either occupying team-oriented space, or working from home or other remote locations.”

None of the analysts I spoke with, who touted EOP’s 64% increase in price over the last year and the 45% returns in 2006 for the entire office sector, expressed any concern about the changing ways in which Americans work. But truth be told, when we talk about residential real estate, work flexibility is always high on the list.

In home remodels, for example, a recent article in the Washington Post about which home upgrades are worthwhile, noted that many of the newer homes today are offering not just one but two home offices. The new trend in “pod” communities, which essentially set up entire new residential neighborhoods in the “ex-urbs”, use the rise in telecommuting as a selling point.

Last summer, when gas prices were soaring, many companies touted new, flexible telecommuting programs for employees. The proliferation of Wi-Fi has now turned everything from Starbucks to LaGuardia Airport into anyone’s professional cubicle, and fears of terrorism or even the Avian Flu in large cities, has many of the bigger companies putting long-term telecommuting procedures in place.

It just seems that as more and more people have less and less need to go to an actual office building, one might consider the very long term profitability of the office REIT sector. Just a thought.

Questions?  Comments?