Surging energy costs are directly
impacting the real estate market.
From the locations of manufacturing plants and distribution centers to zoning
density regulations to the dwindling land
values in outlying areas, the rise in fuel
costs is influencing real estate’s fundamental underpinnings.
Higher energy costs are also having an
impact on overseas shipping, as there is
now an effort to get goods from the Far East
closer to the end user.
“Instead of unloading in Los Angeles or
Long Beach, some ships are going through
the Panama Canal to the East Coast,” says
Keith Zeff, director of research for Colliers
Turley Martin Tucker. “By getting the goods
closer by ship to the end user, there are less
transportation costs by truck or other less
efficient means.”
Smart Business spoke with Zeff about
how rising energy costs are affecting development density, mass transit and transportation logistics.
What impact do higher energy costs have on
development density?
The higher the density, the greater possibility there is to have a shorter commuting
distance. Municipalities are relooking at
zoning density and use mixtures because
they want to intensify density in some
close-in areas where travel distances are
shorter and public transportation options
are more plentiful.
The interesting fact about zoning is that it
was created about 100 years ago in the
United States to separate land uses so people didn’t have to have their house next to a
smelly manufacturing plant. Little by little
we’ve reversed that trend. For one thing,
there are fewer manufacturing plants. And
the ones that are around tend not to be
smelly — they produce goods that don’t
take a lot of the energy used in the past.
Also, people want to be closer to grocery
stores, which used to be separated by zoning categories. Mixed use has become a
popular phenomenon and has impacted
shopping center designs. In fact ‘lifestyle
centers’ is a shopping center category that
has increased in the past five years. These
are all issues largely related to energy use and how people plan their days between
their work schedules, their consumer needs
and home life.
How are exurbs (commuter towns) affected?
Land brokers have found it very difficult to
sell residential land in the exurbs. Part of
this is due to the housing crisis. Another factor is the increased interest in coming closer in than the outlying areas. There was a
saying in residential sales that went, ‘Drive
until you qualify,’ which means people
would go farther and farther out until they
could qualify for the loans of the houses
they wanted to buy. This trend, however, is
reversing because the energy costs offset
the savings of the lower-priced housing.
Outlying locations are definitely not as popular as before.
In what ways is mass transit impacted?
Most urban systems have seen ridership
increase. There is also a trend towards
development around transit stations.
Transit oriented development is a concept
the Urban Land Institute has been talking
about for a long time, but now it is come to
pass that land around the transit stations has become more valuable and higher-density development is a good use of that land.
The issue is coordinating the land use
decisions with the transportation system
decisions. In some cities, like Toronto, the
same governing body that lays out the transit system makes zoning decisions. I visited
Toronto over 25 years ago and you could tell
from an aerial photograph where the transit
stations were because the buildings were
higher and denser around the transit stations. A high-density transportation system
supports higher-density development and
the higher-density development helps support the transportation system. It’s a mutually beneficial arrangement when those two
things can be coordinated.
How are energy costs affecting transportation logistics and where distribution facilities
are located?
People have cited this as going in two different directions. On one hand, some people
are saying that because of transportation
costs they need to have the distribution centers closer to the end user. Backers of this
argument say it’s best to have smaller distribution centers with more of them scattered
around. Others say the opposite: because of
deficiencies it’s best to have larger distribution centers. This can be justified by having
the distribution centers run by a third-party
logistics company that can realize savings
by combining shipments of goods from multiple manufacturers.
Will the location of manufacturing facilities
be influenced by transportation costs?
It already is. There have been some overseas manufacturing facilities that are now
being questioned because of the distance
goods must be shipped. In fact, even across
borders, like Mexico, many manufacturers
opened facilities to take advantage of lower
labor costs. But given the distances the
goods must travel from the manufacturing
plant to the distribution center to the end
user, the higher shipping costs may offset
the savings from the lower labor costs.
KEITH ZEFF is director of research for Colliers Turley Martin Tucker. Reach him at [email protected] or (314) 746-0353.
