The Expert: A Bet on Occupancy

Recently, I made a $10 bet with a Grubb & Ellis broker who thinks that only half the nation’s office space will be occupied within five years—a 50 percent vacancy rate! It’s not due to “The Great Depression Ahead” (if you are a fan of Harry Dent). The broker thinks that half of us will be working from our homes with the assistance of high-speed Internet connections and other communications technology, saving big bucks on office occupancy costs for our employers. This is not a new argument. In a Grubb & Ellis forecast report from the mid-1990s, I questioned whether office property owners should sell before their tenants began to send their employees home to work.This is part of a larger argument about the substitution of technology for commercial real estate, as my good friend Hugh Kelly once pointed out to me. In the late 1990s, there was a school of thought that shopping centers would empty out and that the few that were left would turn into nothing more than showrooms because consumers would be shopping online. A few years ago, a well-known real estate consultant wrote a very convincing white paper arguing that radio frequency identification tags would eliminate a big chunk of demand for warehouse space. No doubt technology is having an impact on demand for office, industrial and retail space, but the impact so far has been at the margin.William Whyte, author of “The Organization Man” and “City: Rediscovering the Center,” wrote about the value of serendipitous street-corner meetings among professionals and the importance of these interactions to conducting business. This principal has been recognized by economic developers more broadly as they work to strengthen key industries and concentrations of professional talent in their regions. A well-located and well-designed office supports these interactions. Working from home is not a substitute. In five years, I fully intend on collecting that $10 from my broker friend and then taking him out for a steak dinner—assuming a lot of deflation between now and then.Bob Bach is senior vice president & chief economist for Grubb & Ellis Co.