||Internet vs Real Estate
Telecommuting, office sharing, and e-commerce are
buzzwords for the new century. We all slowly but surely
catch on to these practices. The Internet offers to
change our lives in ways we have not even thought of. In
the eighties the "paperless" office was the
business theme. Now the "peopleless" office may
be on the verge of reality.
With a minimum of equipment a person can set up a home
office that is connected to the main office through a
modem, cable modem, ISDN, and now DSL. How will these
technologies affect the value of real estate?
Right now, we are probably at the same stage with the
Internet as we were with the automobile back at the
beginning of the 20th century. It has become more than
just a fad for people to use computers and the Internet.
Now, computers are often compared to cars. It is said
that, if cars were computers, a Mercedes Class 30 would
cost five cents and fit in your pocket.
The analogy to cars has been picked up by business. One
of Microsoft's slogans is "Where do you want to go
today?" When people are on the World Wide Web, they
often talk of "going" to a web site. This
paradigm will eventually be taken a step further with
virtual presence, or three-dimensional teleconferencing.
But even before that happens, many office workers will be
working from home for more and more hours. High tech
companies like Nortel Networks are encouraging their
employees to acquire cable modems so they can telecommute
during bad weather. Eventually this type of change in
activity will be responsible for excess office space.
While technology costs are high, there will probably be a
shaky equilibrium as rents for this excess space come
down and prices of the technology come down. When
technology prices reach the level where an employer can
provide telecommuting equipment at a cost that is
substantially less than that of providing office space,
the economics of telecommuting will rule.
The effect will not just be confined to the office
market. As there are fewer and fewer commuters on the
road, some aspects of retail are bound to be affected.
Part of the retail market is already directly affected by
Internet shopping. It is already faster, more convenient,
and less expensive for people who are connected to the
World Wide Web to shop for certain items online. When the
number of consumers connected to the Internet reaches
critical mass more and more retailers are likely to
follow Egghead Computers (which moved its retail
operations completely online at the beginning of 1998)
and move their operations entirely to the World Wide Web.
As a significant number of retailers move online, rents
in even the most desirable locations are likely to start
to decline. There will also be less need for gas stations
and convenience stores. People are already willing to
endure long commutes to work so they can live in areas
that are more rural. As they become connected to the
Internet, it will not matter as much where people live
when they can commute to work at light speed.
One short article is not enough to discuss all of the
ramifications of the Internet for real estate values.
Certainly, in the future, the Internet will be a large
factor in the value of real estate.
William T. Whiting, Jr.
The Reenstierna Associates Report is published as a
service to the clients of Eric Reenstierna Associates and
other real estate professionals. The views expressed are
those of the articles' authors and do not necessarily
reflect those of other members of the organization.
Copyright 2000. All rights reserved.
Eric Reenstierna Associates
24 Thorndike Street
Cambridge, Massachusetts 02141
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