by John White, CRE, MAI (Editor-in-Chief)
Published by the Counselors of Real Estate, the Appraisal Institute, and the Society of Industrial and Office REALTORS® Educational Fund, Chicago, 1993.
Copyright © 1993 Property Valuation Advisors, Newburyport, MA
IN THE U.S., about 40 million people work in the nation's 11 billion square feet of office space. This space is worth about $1 trillion. One trillion, according to Webster's 9th Edition, is "a very large number."
This book reflects these large numbers. It contains thirty-two chapters, written by forty-four authors, on a total of 678 pages. It weighs in at close to 3 lbs. Some books are difficult to put down, whereas this one is difficult to pick up. To finish it, I had to lug it around on weekends and often read it while at the beach. If one more person asks me, "What are ya readin, War and Peace?", I'll scream!
Nonetheless, the goals of the book's editor were to produce "an unusually comprehensive" reference work on the office building industry. Despite the book's forty-four authors, the editor aimed to avoid the duplication and lack of continuity found in many, multi-authored books. Additionally, he wanted the book to appeal to the highest level of practitioner.
The book begins with the history of the office building. Although the first offices were seen about 3,000 BC, commercial use did not become prevalent until the Italian Renaissance to accommodate the growth of Italian banking houses. Later catalysts included: the typewriter, the electric bulb, the telephone, the flush toilet, the elevator, and the air-condition.
The book offers an eye-opening (and perhaps humbling) breakdown of today's allocation of the nation's office space at least from a New England perspective. Surprisingly, it tells us that New England (my stomping grounds) only accounts for about 4% of the nation's total office space. In contrast, California has about 20% and the Mid-Atlantic area holds about 30%. Another startling fact is that at the beginning of the eighties, the nation's total supply of office space was 6 billion square feet, today the number has skyrocketed to 11 billion. To a large extent, this explains why we see so many empty office buildings.
The book provides chapters on a wide-range of topics including the office building's legal and economic framework, marketability and feasibility, development, design, construction, sale and rental, financing, management, valuation analysis and portfolio management.
Two notable chapters were "The Evolution of the Office Building" and "Today's Characteristics". The evolution traces useful and obscure, but interesting historical information. We learn that we might not have high-rise buildings today, had it not been for the invention of Alexander Chambers' stink trap. This invention allowed for upstairs plumbing.
Next, in James Goettsch's chapter, he informs us that limits to a building's height may be contingent upon a local fire department's ability to reach a specific height. This height is known as the breakpoint. He closes the chapter with a look into the office building of the future. He predicts that they will contain larger common areas and meeting rooms, but smaller workstations where temporarily assigned workers returning from the field will plug in.
Next, in "Market Cycles", Anthony Downs, Ph.D. perceptively breaks down all office building market activity into five types: additions, removals, tenant movement, sales, and (re)financing. He states that from 1970 to 1988 the number of office workers in the U.S. doubled, while the total work force only increased by 46%. Even more dramatic over the same period, manufacturing employees increased by only 3%. Still, despite these dramatic increases in the work force, which caused dynamic increases in demand for office space, the average overall office vacancy rate worsened to 19%. The increased rate was a result of over-building. Downs predicts that the equilibrium vacancy rate through 1996 will settle at 8% to 12%. He believes this period will be a gradual absorption phase and claims it will be similar to that which took place from 1976-1978 and again from 1980-1983.
In Richard Kately's chapter on marketability studies he offers a clear six-step approach to performing a well-formulated market analysis. He warns that overall measures may be imprecise. Ideally, an analysis should focus on space within the same class. The all important factors of supply, demand, vacancy and absorption may vary widely among these classes. In the end the study should always aim to answer the question: "How will an office building in this location perform?".
With only one exception, all chapters fulfilled the editior's aim of writing for the highest level of practitioner. The chapter on the legal framework, however, never got beyond the "footings". A sample of this chapter's statements includes: "That which is built on the land differs significantly from the land.", "Buildings wear out.", and "The conveyance of any real property and improvements is evidenced by an instrument called a deed." Unless you've never taken a rudimentary brokerage, appraisal, or business law course, or you alternatively, enjoy listening to stuck rap records, skip it.
Speaking of broken records, as an instructor of appraising I was taught that it is a good idea to repeat significant terms to your class as many as three times. The first time the book explained the term floor-area-ratio (FAR), it was interesting. Even the second and third time was okay. By the sixth time, however, briefly, I found myself wishing I were reading War and Peace.
Otherwise, you will find this book to be a tower of non-redundant, coherent, and useful information on innumerable topics. I suggest. therefore -- provided you have a strong bookcase -- you get this book. A partial list of informative topics includes: the growing significance of pension fund and REIT investment; life insurance and credit corporation mortgage money; parking and traffic concerns; optimum floor sizes and layouts; elevator efficiency guidelines; net leasable area controversies; "workout" problems comparable to recurring chest pains; as well as prudent advice on both forecasting cash flows on optioned space and when to avoid the typical ten years as your assumed holding period.
Has the editor accomplished his goal of producing an "unusually comprehensive" reference work on the office building industry? The good news is that I can't think of anything that was left out. If there is any bad news, it is that there is too much. But, then it would no longer reflect the state of the office building market today so well: "oversupply!" Therefore, when reading this book allow for an extended absorption period.
The book above is available on-line at Amazon Books.
Stephen Traub, ASA, the reviewer, is chief commercial appraiser for Property Valuation Advisors, 63 Hill St., Newburyport, MA 01950. He is a certified general appraiser in NH, ME and MA.
To contact the author of this review, e-mail to: firstname.lastname@example.org or contact him at the address above, or call 978-462-4347.
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