A 2008 review of US financial markets would reflect on a year in crisis, a year leading to unprecedented reorganization and capital restructuring, and a year presenting perhaps one of the biggest challenges for financial systems that we’ve historically ever seen. A general overview of the Boston commercial real estate market reveals that the last 17 years have been one huge growth cycle. From the beginning of 1991 to the end of 2008, the total Boston office market size increased from 124.9 million sq.ft. to 193.99 million sq.ft. – a 55% increase and an addition of 69 million sq.ft. of space. That’s approximately $17 billion worth of new construction in the last 17 years. Although this represents about double what the employment growth rate indicates can be carried in inventory, there is still opportunity in crisis.
The year 2008 was marked by three major crises – the foreclosure crisis, the oil crisis and the credit crisis. Inflationary security trumped risky investments opening the door for speculators and ill-fitting homeowners to enter the market in droves. The simple inequality of the equation made 2008 a year for increased foreclosures in markets all over the US. The oil crisis was fueled by $4 plus per gallon at the pump and a dipping dollar, and, of course, the credit crisis led to the disappearance of solid institutions and financial giants almost overnight. In the face of crisis, our natural response is to panic. However to see opportunity through the graying skies, what we really need is calm – no more quick fix solutions and no more short term thinking.
Professional leaders look beyond the short term to the opportunity of managing long term assets. The rental housing industry is an interesting sector to look at right now – it’s a good time to be in the multi-family business. Why? Because renters are not affected by home loans and creditworthiness – they rent by choice and must fulfill their basic housing needs regardless of overall economic conditions. When home ownership is too hard to obtain, a professionally managed rental is option number one. This sector offers a sustainable return over the long haul; well managed, quality products will attract and hold good renters.
While the next 12-18 months may be rocky for the Boston commercial real estate market, things will recover. In the meantime, opportunity knocks. Despite the economy, Boston has a highly educated work force, and growth is expected in the education, health, sciences, engineering and consulting sectors. Business diversity, world class colleges and universities, and cutting edge medical and life science organizations will help fuel the eventual turnaround. For professional leaders, now is the time to take advantage and lead the cause.