You’ve likely heard of the real estate conspiracy on the residential side—the notion that real estate agents talk down their own neighborhood so they can sell theirs more quickly and make more money in the process. What you may not have realized, however, is that commercial real estate is even worse than residential real estate when it comes to hidden agendas and shady practices. But don’t take my word for it; read this post to learn all about the commercial real estate conspiracy!
Why commercial real estate prices are so high
It’s a popular belief that commercial real estate prices are high because of some malign force, often a cartel or other shadowy group working behind closed doors. I’ll come out and say it: there is no cartel controlling commercial real estate prices in your local market. What there is, however, is a large amount of mistrust between buyers and sellers…and that’s what causes prices to be high. When one side or another feels they’re getting screwed, they refuse to do business with you. And if no one wants to do business with you (as an owner or buyer), then prices will remain high (or even rise). The conspiracy goes deeper than simple greed or maliciousness—it goes down to plain old human behavior.
Rising costs in commercial real estate development
The average construction cost per square foot of a new office building has been increasing. This is due to many factors, including labor costs, but they have built up over time and now make up 25 percent of total development costs. In big cities like New York, San Francisco and Washington DC that figure is as high as 50 percent! There are ways to keep your commercial real estate projects within budget. One way is to use less expensive materials for finishes and fixtures. For example, ceramic tile flooring can be replaced with laminate flooring or carpeting in some cases. If you can cut down on these costs by 5-10 percent you will save thousands of dollars on each project. While it may not seem like much at first glance, those savings will add up quickly if you plan on building multiple properties in one year or over several years.
‘Offices in a box’
More and more, businesses are turning to pre-fabricated buildings for their office needs. But does prefab have a place in commercial real estate? New construction trends say yes, as modular buildings and offices that can be constructed quickly are on the rise. Industry professionals say these offices in a box are an innovative way to provide flexible space for companies when their needs change. Are they right? Or is it just another trend that isn’t all it’s made out to be?
Explaining urban sprawl
With urban sprawl, also known as suburban sprawl, a city continues to develop with bigger and bigger buildings that take up more and more space. As time goes on, developers have fewer places to build in because all of their available space is already used up. New buildings are forced to move farther out into unoccupied land. As a result, large amounts of farmland and green spaces are destroyed because they’re needed for construction. This creates urban sprawl in many different cities around the world.
Office parks and bungalow courts
Don’t be too surprised to find suburban office parks and bungalow courts on a list of commercial real estate conspiracy theories. These buildings are what people think about when they think about an office: big box stores separated by a sea of parking. But many companies are starting to break away from their cookie-cutter roots, building creative new structures and making innovative modifications to older properties that support their businesses and give them plenty of room to grow. In turn, architects like Bjarke Ingels are becoming increasingly interested in commercial construction, leading to some really cool designs and concepts that go beyond just glass cubes with nice views.
What’s really being built?
Construction and real estate is a profitable business, to say that least. And in an industry as large as real estate, there’s bound to be some shadiness. If you’ve ever been behind-the-scenes at a construction site or even just flipped through your local newspaper, you might have noticed all of those luxury apartment buildings being built right now: what are these for? Are we about to see a boom in suburban growth? When it comes down to it, no—these buildings are not for families or any kind of practical living situation. Rather, they are aimed at one thing: investment.
So what happens next?
The general contractor is at risk for loss of profit on both his fixed-price contract with you and also on his cost-plus contracts with subcontractors. What do you do about it? What can you learn from it? How can you come back stronger next time?