And how it’s changing the future of real estate investing
Ric Edelman: It's Tuesday, October 10th. You know we've talked a lot about real estate this year and we're going to keep talking about it because real estate is the number one driver of the US economy and it's undergoing radical changes, rising interest rates, remote work as a result of Covid, the affordability crisis and housing. All this means we need to pay attention so that we can understand the future of real estate and the future investment opportunities.
One big question that everybody's focusing on right now is commercial office space. Will we all ever go back to the office? And if we don't, what does that mean for the future of office buildings?
Well, listen to what Stephen Roth says. He's a billionaire and the chairman of Vornado Realty Trust, one of New York City's biggest owners of office buildings. I don't know if people are ever going to return to the office, but he says that Fridays are “dead forever”. And he also says that Mondays aren't far behind; meaning nobody is ever going to go back to the office on Fridays or likely on Mondays. And Nick Bloom, who's an economics professor at Stanford and head of Work from Home Research, he says Stephen Roth is right. Fridays used to be casual Fridays. Historically, more people used to call in sick on Fridays than any other day of the week. And with the aftermath of Covid, you can forget about calling a staff meeting in office on Fridays.
So does this mean that offices are dead? No. Some businesses have to be operated from the office. And even where there are some personnel who can work from home, there's a benefit to having people in the office at least part of the time. For some businesses. So the new buzzword for commercial real estate is hybrid.
Stanford's Nick Bloom calls it the three-part week. Mondays through Thursdays are one thing. And then there's the weekend when offices are closed. And now we have Fridays, which have to be treated differently all on their own. A study by McKinsey found that nearly 60% of the US workforce can work remotely at least several days a week.
And increasingly, many companies, especially small ones, are 100% remote. That includes mine here at DACFP and The TAYF, the Digital Assets Council of Financial Professionals and the Sister company, The Truth About Your Future; this podcast. I've got all told about 25 staff and we're remote, scattered all over the country. We get together a few times a year at conferences, meetings and retreats, But a big way I manage expenses is by avoiding the cost of renting office space. And I get to hire the best people from all over the country, not just the best people in my town.
So what does all this mean for commercial real estate? Well, Class A space is probably fine. Long term top law firms and such are always going to need and want space in the best buildings. But Class B space, that's the kind your doctor rents, that'll really struggle to find enough tenants with companies having only people in the office part-time and having many of them working remotely full-time.
Will those companies need as much office space as they needed in the past? I look at my headquarters location at Edelman Financial, three glorious floors and a class A building connected by a beautiful three story floating staircase. That space was built for 300 people, and it's been a ghost town ever since Covid. You really think the company is going to renew its lease when that comes due? I don't think so.
The result is going to be a major shift in urban planning. These buildings and entire cities are going to get redesigned. Offices will be converted into condos, hospitals, schools, malls and public spaces. This is very bad news for the current landlords who are watching their property values crater. But it's great news for the real estate developers and the construction industry. And in the end it'll be great for consumers too, as these spaces will be redesigned for the lifestyles we are now enjoying in our post-pandemic world.
Lots of change underway for real estate. All I can tell you for sure is that the real estate of the future will not be the same as the real estate of the past. That creates investment opportunities. As a financial advisor, you need to explore these opportunities for your clients, giving them the same investments you've been giving them for the past several decades is not going to be what they need for the next future coming decades. Everything's changing and changing rapidly. Your clients are counting on you to help them keep up to date. That's what you're paid for, right?
Switching gears, you know, you understand stocks and bonds and real estate and you know how to evaluate them. You know how to choose among them. But do you know how to evaluate and choose among digital assets? Come learn how tomorrow on my next webinar at 1 p.m. Eastern. I'll be joined by Christopher Jensen, director of research at Franklin Templeton Digital Assets. And we'll show you tokenomics and how you can use this new research to make informed decisions about crypto coins and tokens. You'll get one CE key credit to stay informed about the latest in the investment management field. You can register right now. The webinar is tomorrow at 1 p.m. Eastern.