With the pace of development rising and home prices ticking upwards, it seems we may finally be reaching the light at the end of the tunnel for real estate markets. However, a failure to acknowledge future problems will only lead to more of the same. In an article for the National Real Estate Investor, David J. Lynn, Ph.D. discusses the following two issues facing commercial real estate in depth.

The Modern Office Space

Technological advancements have clearly redefined the structure of the typical office. As employees have gained the ability to connect to their clients, co-workers, and supervisors through various electronic mediums, the need for cubicles and offices has dwindled. Lynn cites CoreNet Global, stating that dedicated space per office has reduced to 176 sq. ft. in 2012 from 225 sq. ft. in 2010.

Beyond this, technological advancements have raised questions about whether employees even need to commute to their office. There has been a rise of independent contractors working from home and participating in meetings and conferences through virtual means.

Businesses that do encourage their employees to work from the office have also changed their way of thinking. The traditional cubicle setting has been exchanged in favor of more open space, giving employees the flexibility to move around and collaborate with each other.

Investments must be adjusted accordingly from the traditional office space to the more progressive, technology-friendly settings in order to move with the times. As of now, however, there is a fear that office space could be facing a grim future.

The ‘Echo Boomers’

From 1982 to 1995, the baby boom generation spawned a new large group of young people now known as the “echo boom” generation. This group of young adults is ready to move out and create a huge impact on the national economy through demand for housing.

The problem seems to lie in the fact that the echo boomers are leaving their homes for more urban areas. This is due to a variety of reasons including the vast nightlife, amenities, and restaurants offered by cities. However, this phenomenon is mostly due to the increased employment opportunities that cities provide in comparison to suburban areas. Echo-boomers are even willing to trade size of residence for proximity to these locations.

The echo boomers are not necessarily dependent on motor vehicles. They enjoy walking, riding bicycles, and even mass transit. Echo boomers are also not looking to buy homes, but choose to rent instead. These characteristics all make the city more appealing than the suburbs for the echo boom generation.

As there is increased demand in these urban areas, the suburbs will begin to see bumps in the road. Demand for housing and/or retail space will very likely decline and tax revenues will shrink. Lynn suggests that suburbs take action to modernize by investing in mass transit, parks, and other ways to create more urban surroundings in hope of attracting future generations.

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