Property & Telework, Commercial & Residential property values.

Property and Telework

The impact of telework on commercial and residential property uses and values.

We are collecting and analysing information about property in this electronic revolution era. We welcome reliable reports of values, prices, empty space, re-use of property and new factors in relocating homes and organisations. Please email to

noelhodson@btconnect.com

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Tuesday, 03 August 2004

Does an aging population mean less demand for homes – 3 August 2004.

Table to AD2090 by Noel Hodson.

Wrinkly old World – Population shifts 1990-2090 – posted 19 July 2004.

New York squeeze Reduces Rents – 26^th May 04 – Terry Pristin reports in the New York Times that accountancy and law firms are reducing the space for office bound employees and saving on rents. Price Waterhouse Coopers have reduced from 286 ft² per person and shed 200,000 sq ft (20%) on moving to 42^nd Street with the same 3,500 employees (that’s still a generous 228 ft² per person including common areas and circulation space – which is bang-on the past 5 years’ average for the 61 largest metropolitan areas in the US). PWC’s aim across the US is to get down to 175 ft²to 200 ft². Richard Ellis report that in Los Angeles 22 million ft² are renewed annually and if all the tenants aim for 20% reductions when they renew, 1 to 4 million ft² will be left vacant. Green Street Advisors, Calif; calculate that there has been a 5% rise in vacant US offices since 2000. Alongside experiments with smaller rooms for executives, open plan, cubicles and shared spaces, one of the key space saving factors is flat PC screens – which can be sited anywhere on a desk and take 1/5^th of the space of the old TV monitors. Some observers note that as rents fall, tenants take up more space, creating a bottom to the market. My guess is that true mobile working and teleworking is yet to have its impact on these very traditional professions and that technology will continue the trend for smaller offices. The empty space can always be turned into central city homes.

Global Warming Effects the Price Equation – Sir David King, the UK Government’s chief scientist led a study, Future Flooding, by 60 experts, reported in The Guardian newspaper 22^nd April 04. It concluded that up to 4 million UK homes will be flooded by 2050 AD. These properties are mostly along river estuaries and by the sea shore. The UK has about 23 million homes, 4 million is 17.4%. Other regions such as the USA and mainland Europe, with greater land masses and therefore relatively shorter coasts, should logically suffer a lesser percent unless they have large conurbations in low-lying areas. The amount of land that will be inundated depends directly and immediately on the amount of land based polar ice that melts. If all the Antarctic ice-cap melts (3,500 klm x 3,500 klm x 5 klm) the oceans would rise by 180 feet or about 60 yards – 50 metres. The knock-on effect of having, for example 3 million houses in London permanently lost to floods, will destabilise the entire housing market.

For global warming calculation see slide 6 of this 2MB power point presentation (3 minutes to download on a 56K modem):-

See – http://www.noelhodson.com/index_files/Transport-NZ-1/Transport-NZ-1.PPT

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In the USA there are more than 20 million teleworkers and in the European Union (EU) there are more than 10 million teleworkers.

See http://www.noelhodson.com/index_files/teleworkstatistics.htm

COMMERCIAL SPACE

There are about 10 million USA workers who work using computers, only at home, or from their vehicles. These workers do not have a desk in a commercial office building. The average USA desk worker is allocated 150 sq ft or more space, by architects when designing office buildings. This space includes circulation space such as corridors, lift-shafts, stairs and common-areas. In theory, therefore, assuming stable workforce and employment statistics, over the past ten years as telework has increased and joined mainstream working options, office space should have been emptied by the 10 million teleworkers who no longer have a desk in a formal office building. This represents 10 million x 150 sq ft or 1,500,000,000 (1.5 billion) sq feet.

Assuming a rental value of $5 a square foot per year, the rent saved is in the order of 1.5 billion sq ft x $5 or $7.5 billion. This amount should be having a perceptible impact on the USA property investment market. A recent report from Silicon Valley may indicate that an impact is being felt.

See http://www.noelhodson.com\index_files\NEWS.htm

COMMERCIAL SPACE RE-USED

Anecdotal evidence indicated that some landlords are converting office buildings to mixed use. They are widening their options by having planning permission for domestic residences within office buildings. Up to 1995 such a strategy would take commercial office space with a rental value of, say $10 per sq ft per year, and convert it for residential letting or sale at a far lower value, say $3 per sq ft per year. It was rumoured that the famous New York property developer and landlord Donald Trump had converted a Wall Street building to residential use.

There have been similar reports about a building in London, in the expensive Square Mile of the City of London.

COMMERCIAL SPACE ABANDONED

BT in the British Isles and particularly in London, one of the most expensive real-estate zones in the world, have bought-out office leases and handed the buildings back to the landlords, rather than carry empty and costly buildings on the BT Balance Sheet. If the reported 7,000 work-only-at-or-from-home figures are reliable, and all other factors being equal, BT have emptied 7,000 people x 150 sq ft or 1,050,000 sq ft (105,000 sq metres) of office buildings. Assuming the rest of their 31,000 teleworkers or 24,000 people have adopted desk-sharing methods then it can be assumed that at least a further 12,000 x 150sq ft or 1,800,000 sq ft has also been emptied. This makes a total of 2,850,000 sq. ft. (285,000 sq metres) of emptied office space. In addition telephone switching technology occupies less than 1/10^th of the space it used to. Most UK urban centres have a BT operations centre that is now largely redundant.

RESIDENTIAL

Teleworkers work at home. This is a simple statement about teleworkers that in reality obscures a complex picture of people working, at home, from home, in telecentres, in vehicles and on the move. (See http://www.noelhodson.com/index_files/teleworkstatistics.htm particularly the 2001 Telework America survey) However, it is true that the majority of teleworkers do establish a home-office. Irrespective of how often the home-office is used the space is set aside for work use and typically is not less than 12ft x 12 ft or 144 sq ft. For the 20 million USA teleworkers this represents 2,880,000,000 sq ft or 2.8 billion sq ft. Applying the same rent figure as above $5 per sq ft per year, this would represent space worth $14 Billion. Is there any evidence that home values are rising by this sort of amount?

RESIDENTIAL and DISTANCE

It has been forecasted that telework would enable teleworkers to buy homes at greater distances from urban centres and beyond traditional commuter belts. This in theory will equalise the values of homes in rural areas with homes in urban areas. In the UK such equalisation is apparent. For example, 3,000 sq ft country homes in Cornwall, at the South-West tip of Britain, in 1995 were about 1/5^th the price of a similar house in Oxford, 50 miles from London, but in 2003 such homes are worth between 1/3^rd and ½ of Oxford values. Such examples of differentials being narrowed can be found across all UK regions. However the British are one of the nations most likely to make their home their prime investment and residential property continues to be scarce, with a constant upward pressure as soon as householders are enabled to move to larger homes or to buy their first homes.

The USA is very much more complex and larger. The market for homes is equally complex and is affected by differences in State taxes.

Evidence is required to demonstrate that the same equalisation factors are happening around urban centres, such as New York and Los Angeles, as are apparent in Britain.

The EU housing market is also complex , with different cultural habits concerning ownership and preparedness to invest in a home.

Another forecasted trend is that of teleworkers choosing to live close to the source of their hobbies and leisure instead of within commuting distance of a workplace. There are examples of leisure complexes accommodating teleworkers.

VALUABLE INFORMATION

As evidence is assembled that can be reliably used to gauge markets and perhaps to forecast markets in commercial and residential real-estate, it will be analysed, assessed and published here and made available to property professionals for a small price.

March 04 - We expected to see house prices levelling out as telework and advanced communications enable people to live anywhere. There are signs in the UK of this levelling effect and the Brits are taking their obsession with house investment into Europe. There are two or three weekly TV programmes of buying abroad – and it is clear that where the British and the Germans turn their attentions, prices increase. The latest report on the year 2003 shows:

Denmark +2%

Greece +4%

Italy +8%

France +11%

UK +15%

Spain +17%

Other major factors, apart from reliable telecoms, driving the price increases include (1) better financing, as the world’s aging populations seek unearned incomes, (2) Reductions in borders and cultural differences across Europe (3) very cheap air travel – e.g. Coventry to Marseilles £16 return and (4) TV programmes making house buying in foreign countries look simple and trendy.

On April 1^st 2004 (no it’s not a joke) The Wall Street Journal reported the results of a Gallup Poll commissioned by real-estate agents CoreNet Global, Atlanta, asking organisations their views on renting space up to 2010. There were 314 respondents:

40% say that 25% of their “knowledge-workers” will be teleworking.

Therefore the need for office space will decrease.

Of Nine factors affecting location decisions the ranking was:

50%+ Access to customers and markets

27% Access to top specialised talent

20% Better Quality of Life for employees

8% Access to low paid workers (e.g. call centre staff in India, China etc)

This last factor flies in the face of the received wisdom which implied most organisations are low costs driven.

46% said they would pay a premium for “flexible space” in 2004.

67% said they thought they would pay such a premium in 2010.

60% said they will pay a premium for flexible lease terms in 2004.

65% said they expect that they will pay such a premium by 2010.

Error margin on the Poll results is 5.6% - WSJ Reporter SHEILA MUTO. 31Mar04.

Check here regularly for PROPERTY FACTS.

Tuesday, 03 August 2004

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