I just finished reading an article by Jim Gillespie, a commercial real estate coach, in which he discusses peak oil and its impact on the commercial real estate business. But first of all, what does Peak Oil mean?
Jim describes it this way. “When oil fields are new, and petroleum is beginning to be extracted from them, they continue to produce increased amounts of petroleum every year until the production from the field reaches its peak level. Then after this peak amount of production is achieved, the field will only be able to produce lesser and lesser amounts of petroleum every year thereafter. This is the very nature of the petroleum extraction process.”
Jim says that US production peaked in 1970 and says that many experts think that production in Saudi Arabia is peaking right now.
So what, you might say. Well, declining production means less supply. At the same time, demand is increasing rapidly in developing countries like China and India. Put the two together and you have a formula for enormous upward pressure on oil prices. And that means much higher gas prices. Jim’s article quotes an oil industry expert who says it will go to $10 a gallon.
Here are Jim’s thoughts on what impact this might have to real estate.
1. The values of homes and residential rental properties in and closer to major cities will probably do better in the long run versus those located farther away in the suburbs.
2. Office buildings will experience a major increase in heating and air conditioning costs, especially those located in areas with severe winters or very hot summers.
3. Commercial and industrial properties closer to the major cities will...command even more of a premium in the future when compared with commercial space in the suburbs.
4. There will be a need for a much greater amount of housing near the central business districts of major cities.
5. Industrial businesses will transition away from shipping and receiving their goods by truck and towards shipping and receiving them by rail which will be more economical for them.
6. Manufacturing businesses that already have substantial energy costs right now will be hit very hard with the coming increases in these costs and will find it increasingly difficult to remain profitable.”
To read Jim’s full article, go to http://www.realestatesalescoach.com/peakoil.htm. He also has an audio interview here: http://www.realestatesalescoach.com/Energy_Interview.htm.
So what do you think of this? Agree? Disagree? Don’t care? Let me know your thoughts.
Hi Bob,
Some of his points are valid but I disagree about suburban office space. If suburban office space serves the needs of the suburban housing surrounding it, then I think 'micro business centers' will spring up (similar to the small towns of the past) to serve those needs.
The costs of driving in traffic and parking in a larger city will make these suburban office locations more, not less, desirable.
just my opinion.
thanks
Stuart
Rising interest rates and a falling demand may dent the realty market in India. However, the long-term prospects for the sector continue to be good, feels the industry. There are around 21 India-dedicated real estate funds that are raising money in the international market. In the next nine months, nearly $7 billion will be entering the country through various India-dedicated funds. While long-term players are looking at India, short-term players based in the US and Europe, such as the hedge funds and private equity players, are more interested in their local markets. For more view- realtydigest.blogspot.com
I am just gald our agents dont have to drive too apts. I can only imagine what is going to happen if agents that sell or lease have to start pre-sreaning clients to not waste time or money.