We have now eclipsed six months of 2021.
Costco already has Christmas decorations alongside red, white and blue leafy cakes! But I digress.
Anyway, I thought it would be fun to reconsider what this year has brought and what I see in regards to the 2021 balance. It is good to periodically clear your mind of clutter, so I appreciate your indulgence.
A year ago, we received great news about the deal we were closing. The due diligence period ended, the buyer waived the contingency and on July 17, 2020, we started closing the escrow. Boom! Why am I talking about this? You see, this offering was originally launched in February 2020. Great time, huh?
We quickly received an acceptable offer and entered into a real estate contract just in time for the country to hit the pause button. As you would expect, the deal fell through, we waited and relaunched marketing in June 2020.
Our new chronology proved to be a foresight as buying activity returned with a vengeance. Quite frankly, the growth in industrial demand has not stopped. Anyway, it is even more frothy than a year ago. But why? Production and logistics issues were recognized as important. Spare parts were needed for everything to do with a house or a car.
And since people were stuck at home, they spent hours staring at computer screens ordering goods. All these factors have led to the fact that companies that manufacture and ship goods are rapidly developing in commerce.
What’s taking so long? Yesterday I had a pleasant conversation with the relocation and storage company I work with online. He just visited a tech company in the Inner Empire that is in transition. Apparently, the decision was made to largely work remotely, and so their former bristling bank of office suites won’t be needed. They will try to find a surrogate to replace their apartment. This is a classic example of the decisions that office tenants will make throughout the 2021 balance sheet.
Now that we have a clearer path forward (to the next speed bump), people are starting to head back to the office – or not. We have a much better idea of exactly how many square meters are required for operations. But the market turmoil caused by the restrictions has created some uncertainty. There is a dead end for decision making. Long-term commitments, such as extending the lease by several years, are deferred.
Wayne Gretzky expressed his opinion: “I skate where the puck will be, not where it was.” This is a popular quote because it vividly illustrates what everyone wants to do but can’t figure out how to do it. You may be wondering what commercial real estate has to do with it? Just this: it’s almost impossible to predict where the rental rates and sales prices will be in the coming months! Especially with planned or under construction inventory.
True, prices will be higher, but how much higher? This is a huge burden on commercial real estate practitioners to provide clients with appropriate guidance. After all, we don’t want to leave shekels on the buffet. However, vacancies are expensive.
So, if you click – what can lead to a delay in check-in – is it worth the money? During this time, I usually recommend vague pricing, which is unfortunately kind of an excuse. Residents prefer to negotiate on the basis of an established request, rather than “you tell us what it costs” for you.
Let’s do it again next January – predictions, not pandemic – and see how accurate we are, shall we?
Allen S. Buchanan, SIOR, is a director of Lee & Associates Commercial Real Estate Services in Orange. He can be contacted at firstname.lastname@example.org or 714.564.7104.