We now have eclipsed six months of 2021.
Costco already has Christmas decorations displayed alongside the red, white, and blue sheet cakes! But I digress.
Anyway, I thought it would be fun to review what this year has brought and what I see for the balance of 2021. It’s good to periodically clear my consciousness of clutter, so I appreciate your indulgence.
One year ago we got some great news on a deal we were transacting. The due diligence period ended, the buyer waived contingencies and we proceeded to close escrow on July 17, 2020. Boom! Why do I mention this? You see, this offering was originally launched in February 2020. Great timing, eh?
We quickly received an acceptable proposal and put the property under contract, just in time for the nation to hit the pause button. As you would expect, the deal blew up, we waited and re-launched the marketing in June 2020.
Our new chronology proved to be prescient as buying activity had returned with a vengeance. Candidly, the uptick in industrial demand has not stopped. If anything, it’s even more frothy than it was a year ago. But why? Manufacturing and logistics concerns were deemed essential. Replacement parts were needed for anything relating to home or auto.
And because people were stranded at home, they spent hours staring at their computer screens, ordering merchandise. All of these factors caused businesses – who make and ship things – to explode with commerce.
What is taking so long? I had a nice conversation yesterday with a moving and storage company with whom I network. He had just visited a tech company in the Inland Empire that is experiencing a transition. Apparently, a decision has been made to largely work remotely and therefore their former bristling bank of office suites will not be needed. They’ll attempt to find a surrogate to replace their tenancy. This is a classic example of the decisions that will be made by office occupants throughout the balance of 2021.
Now that we have a clearer path forward (until the next speed bump), folks are starting to return to the office – or not. We have a much better picture of exactly how much square footage operations require. But the market upheaval brought on by lockdowns has led to some uncertainty. Decision gridlock ensues. Long-term commitments – such as a multi-year lease renewal – are postponed.
Wayne Gretzky famously opined, “I skate to where the puck is will be, not where it has been.” It’s a popular quote because it vividly illustrates something that everyone wants to do, but may not understand how. You may be wondering what this has to with commercial real estate? Just this: Predicting where lease rates and sale prices will be in the upcoming months is next to impossible! Especially with inventory planned or under construction.
Admittedly, prices will be higher, but how much higher? That huge burden falls to commercial real estate practitioners who have to provide proper guidance to clients. After all, we don’t want to leave shekels on the sideboard. Vacancies are expensive, however.
So, if you press – which can cause a delayed occupancy – is the expense worth it? During this time I generally recommend pricing on a to-be-determined basis, which unfortunately is a bit of a cop-out. Occupants like to negotiate from an established ask vs. “You tell us what it’s worth” to you.
Let’s do this again next January – the predictions, not the pandemic – and see how accurate we were, shall we?
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at email@example.com or 714.564.7104.