August 2022. What a wonderful two and a half years. I’m sick and tired of writing in this space what we’ve been through since the ball was dropped on December 31, 2019.
I won’t bore you with the summary. Instead, today I would like to offer my opinion on the current situation and the possibilities for the future.
Industrial has hit the pause button from its surge in value. The office suites are stocked with goodies for those willing to agree on terms, and retailers—especially Walmart, Target, Ross, TJMaxx, Tuesday Morning, Bed Bath and Beyond, Burlington Coat Factory—are taking their chunks. . With gas and food prices skyrocketing, few people have the freedom to spend as they used to.
As a result, profits have suffered, as evidenced by Walmart’s 14% decline. Retail store traffic is also declining.
To us, all this reminds us of real estate transactions. are you guys still trading?
Consider the factors that motivate trading. I believe the three factors that motivate trading are attitude, inventory and interest rates. All can influence the decision, but in my opinion there is only one factor that changes the decision. It’s a change of motivation!
attitude
Issues such as uncertainty, timing of lease expirations, business forecasts, market conditions, timing, years in business, and age of business owners are loosely grouped into attitude categories.
As a commercial real estate professional, uncertainty is the attitude that causes me the most pain. If the business owner is uncertain about the future, the purchase decision will be postponed, the purchase decision will turn into a lease decision, the 10-year lease will become his 2-year lease, or the new lease will be renewed. may be updated from time to time. Current location of business.
In Southern California, late 2008 and early 2009 were particularly painful. The worst recession since the Great Depression he said began in December 2007 and ended in June 2009.
At the beginning of 2008, many of us in business sensed that ‘change’ was coming. In the fall of 2008, our worst fears came true as the financial industry collapsed, values plummeted and many real estate deals collapsed.
The resulting uncertainty lasted from early 2009 until after President Obama took office. Deciding to bring his employees back to the office today, the CEO is faced with employees working comfortably at their tables in the kitchen while the high cost of gas doesn’t motivate them to commute.
With logistics buildings filled with holiday merchandise and squeaky retail stores, the situation resembles constipation.You need something to keep things moving!
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The market supply of suitable substitutes can affect the timing and viability of transactions.
We’ve all been through a “seller’s market” since 2019. In this day and age, demand for space far exceeds supply.
As a result, sellers can afford to be bullish, and often are. Inventory must be carefully reviewed daily to best position buyers or tenants for transactions.
Currently, the market is changing from a seller’s market to an “equal” market. So the halcyon days of multiple offers and his TBD pricing are about to end.
The last time I saw a “broker premium” offered for trades completed by September 30th was in 2014. Costly vacancies, what is that?
degree of interest
Significant ups and downs movement can be a motivation to trade. In the early 1980s he saw double-digit interest rates and the past decade has seen record low interest rates. With interest rates soaring by a point or two recently, many buyers are taking a pencil-down approach to pursuing a purchase.
Any combination of the above can cause a shift in motivation. In my experience, this is the only reason real estate deals fail. Expect good attitudes, balanced inventory and affordable interest rates!!
Allen C. Buchanan (SIOR) is a Principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at his [email protected] or 714.564.7104.