Editor's Note: Joel Salus is a veteran reprographics firm owner and consultant who tracks the industry closely. The article below expresses his concern about the current state of affairs in the industry.
Joel Salus presenting at the APDSP workshop in Houston in March 2023.
My best friend from childhood has been in the commercial real estate appraisal business for decades.
The other day, when we were catching up on the phone, he mentioned this looming crisis to me (click here to read the article he was referring to), further explaining that he recently completed an updated appraisal project for one of his clients who has, for 40 years, owned a 300,000 sq ft office building in downtown Washington, DC. When he appraised that office building 3 years ago, the appraised value came in at $105 million. When he updated the appraisal one month ago, the appraised value came in at $55 million. A gigantic, significant drop in value. When he submitted his report to his client, his client remarked, “I thought that would be the case.”
I’m old enough to have seen, several times in the past, how increasing interest rates affect the reprographics industry. Not good. Always bad. Rising interest rates around 1981 caused havoc, rising interest rates around 1989 did that again, and we all know that rising interest rates were part of what caused the Great Recession. We now have a double-whammy problem; a) rising interest rates and b) substantially lower office building occupancy rates (the latter brought on by Covid). Rising interest rates increase the cost of ownership and development. Lower office building occupancy rates drag down rents, reducing revenue to owners from properties they own and reducing projected revenues from projects they are or were planning. Higher costs, lower revenues. Which, to me, means that A&E and Construction firms will see a decline in project activity….. and, even though repro revenues are not as tied to development/construction activity as they once were (16+ years ago), I do believe we will see a decline in repro revenues. (See my tracking chart for AIA's ABI data below.)
My advice to my friends in our industry. Pay down your debt, pay off your leases, cash-wise be nimble. Continue to push into the wide and grand format color graphics segment.
