I’m
penning this column from one of our great U.S. cities, Chicago, Illinois. The
scale of the downtown area is overwhelming. Massive skyscrapers rise from the
banks of the Chicago River as it meanders toward Lake Michigan. The El bangs
along rickety tracks in its endless loop around downtown. Of all the major
metropolitan areas in our country, Chicago may be the most impressive.
Later
today, I’ll address the Lee & Associates Chicago office. My topic is The
SEQUENCE AI, derived from my book, The SEQUENCE, with a bit of artificial
intelligence magic spun in.
But
on to the topic of today.
As I
walked Chicago this weekend, I was struck not simply by its size, but by its
resilience. This is a city built around transportation, commerce and real
estate. Yet the way each of those functions today bears little resemblance to
the city that produced many of the magnificent buildings surrounding me.
Which
caused me to wonder. What makes a piece of commercial real estate endure?
Is
it the building, the location, the infrastructure surrounding it, or simply our
willingness to imagine a different use when the old one no longer works?
Commercial
real estate is littered with buildings constructed perfectly for yesterday.
Chicago
provides plenty of examples. The city grew because of its strategic location,
first as a connection between the Great Lakes and the Mississippi River system,
then as a railroad hub linking eastern markets with the rapidly developing
West. Commerce followed the transportation, people followed the commerce and
real estate followed the people.
Sound
familiar?
Southern
California developed differently, but the fundamentals are remarkably similar.
Our ports, freeways, airports, population and enormous consumer base created
one of the largest industrial markets in the country. Manufacturers,
distributors and logistics companies needed places to make, store and move
things, and an industrial real estate market grew around them.
But
markets change.
Manufacturing
processes become more sophisticated. Distribution becomes more automated.
Companies require more power, greater clear heights, better loading and fewer
employees per square foot. Buildings that were state of the art 40 years ago
can suddenly find themselves functionally obsolete.
Office
buildings face an even greater challenge. Remote and hybrid work have changed
the amount and type of office space many companies require. A magnificent
downtown tower can still occupy a great corner, offer spectacular views and sit
adjacent to tremendous infrastructure, yet struggle because the original
assumptions upon which it was built have changed.
So
what happens next?
Some
buildings will continue doing exactly what they were designed to do. Others
will be renovated and repositioned. Some may find entirely new uses, while
others will eventually disappear and give way to something the original
developer never contemplated.
We
see the same thing happening in Orange County.
Older
manufacturing buildings are being occupied by advanced manufacturers whose
products their original occupants could scarcely have imagined. Corporate
campuses are being reconsidered. Industrial buildings are being modernized.
Office owners are wrestling with what their properties should become if
traditional office demand never fully returns.
Which
brings me back to Chicago.
Great
cities endure because they adapt. The river that once moved raw materials now
carries architectural tour boats beneath skyscrapers. Elevated trains designed
in another century still rumble above streets filled with people carrying
smartphones and ordering rides from apps. Buildings constructed for yesterday
remain valuable because the infrastructure, location and human activity
surrounding them continue to matter.
Therein
lies the lesson for commercial real estate owners.
We
tend to think of a building as a permanent asset, but its usefulness is
anything but permanent. Markets change, technology changes, companies change
and the way people work changes.
The
dirt, however, remains.
And
sometimes the greatest value in a piece of commercial real estate isn’t what it
is today, but what someone can imagine it becoming tomorrow.
