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When oil prices soar, real estate is affected because buildings use a great deal of energy for heating and cooling and because accessibility is dependent on automobile travel.
June 01, 2007 -- When oil prices soar, we are reminded of the several times in the past 35 years, going back to the 1973 oil embargo, when we have had this problem. Prices have been much higher at the gas pumps – the 1980 price of $2.05 per gallon was the equivalent of today’s $3.25 when inflation is factored in.
Some of the things we learned in previous times should make income property investors and builders do some contingency planning. Real estate is affected because buildings use a great deal of energy for heating and cooling and because accessibility (an element in value for many kinds of real estate) is dependent on automobile travel.
What if you are investing in properties that are in outlying areas? A remote resort property could be a victim if automobile travel slows. There was a Sunday ban on gasoline sales during the 1973 embargo.
Residential projects that are some distance from shopping, jobs, etc., could be affected if oil and gas prices stay high for long periods of time.
In-fill space (undeveloped land located in built-up areas) could become much more desirable. Office buildings and shopping centers close to downtown areas, accessible to public transportation could benefit. Buildings that now have high vacancy rates, but with good access, could be a good investment if energy prices stay high.
Saving Energy
When faced with high energy prices, conservation can cut costs significantly. Using modern computer controls can result in savings with little inconvenience to tenants. Here are some ways to save:
• Lighting levels. Sometimes lighting levels in public areas are primarily decorative. If the levels are higher than needed for eye comfort, they might be reduced. Outside decorative lighting might be eliminated. Take special care with any lighting needed for security. If any changes are made in any security lighting, it could be the basis for a claim against the owner in case of accident or criminal activity.
• Temperature. You can cut fuel usage with a slight increase in indoor temperature (when cooling is required) or a slight decrease (when heating is required). If the property is not occupied at night and on weekends, drastic changes can be made at those times. Making small changes in controls can save fuel. Individual room controls can be used so that an entire floor or portion of it need not be heated, if unoccupied. Keep in mind that some municipalities have regulations regarding heating levels in apartment buildings.
• Maintenance. Check the heating and air conditioning equipment at regular intervals to keep operation at high efficiency. Check for adequate insulation. Can elevator service be reduced during non-peak hours?
• Tenant cooperation. By contacting the tenants, asking them to use care in use of utilities, savings can result. Simply closing blinds in summer and opening them to sunshine in winter can have a big effect on utilities. In some cases, there are tenant leases that contain escalation clauses that include increases in energy costs, there may be further incentives for tenants to keep costs down. |
