Spring 1995 Edition of Property Valuation Monitor

Immobility of Real Estate: A Blessing or a Curse

Copyright © 1995 Property Valuation Advisors

ALTHOUGH MANY ARGUE that the immobility of real estate is a curse to those who own it, in some cases, it may be a blessing.

Granted, if you were stuck performing your labor in only one location and were never able to leave or transfer (as is the case for real estate), this would limit your employment flexibility and, therefore, your options and value -- and this is often the case for real estate. A piece of real estate and its improvements can not pick up and move to "where the money is", or move away from "where the money is not", although you or I (or even an entire company) can.

The best bricks, mortar and glass alone do not make a piece of real estate valuable. It is only when the property satisfies a need that value is created and maintained. Satisfying a need (being at the right place at the right time) is the only condition that will give real estate value, no matter how wonderful a facility may be erected on it (e.g. Euro-Disney, Wang Towers, downtown Lawrence, MA, etc.).

Real estate is ordinarily, therefore, at the mercy of the economy that surrounds it because of its lack of mobility. Once it enters the game, it is there for good (or bad). It can't get out when it feels the time is right. It's not able to move or transfer to another city, state, or even another country, like you or I can.

If this is the case, then isn't immobility a curse? Not always: when the economy is booming in the geographical market that a piece of real estate serves, it may enjoy a near-monopoly on the real estate services it provides. In such a case, it, therefore, potentially reaps benefits in ways that you or I can not (unless we also have a unique service in which it is difficult for others to gain entry).

The potential supply of competing property types quickly can't hop a train, plane, or car and set up camp and immediately compete on an equal footing (excuse the pun). Moreover, competition can't encroach on a property's monopolistic right to occupy its specific place on the earth. If a property is in the right place at the right time and the barriers to entry for additional supply are high (which they usually are), added competition will occur slowly, if at all. It is the immobility of other properties that becomes a blessing to the owner of an existing property located in a favorable location.

Although conventional wisdom is that the immobility of real estate is a curse, nonetheless, in some cases when a property holds a significant, competitive, locational advantage, immobility may in fact be a blessing.

The author, Stephen Traub, ASA, is Chief Commercial Appraiser for Property Valuation Advisors, Newburyport, MA. He is a certified general appraiser in NH, ME and MA. He can be reached at (508) 462-4347 or by e-mail at: straub@shore.net.

Other articles in this Spring '95 PVM issue include: Rates Rise, Spreads Narrow; Commercial Mortgage Survey; Review of: Market Analysis for Valuation Appraisals by Fanning (Published by the Appraisal Institute); Northern New England Vacancy Survey.

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