With 2020’s crazy real estate year in mind, what does the rest of 2021 bring? – Orange County Register
We have now dwarfed six months of 2021.
In addition to the red, white and blue sheet cakes, Costco has already displayed Christmas decorations! But I digress.
Anyway, I thought it would be fun to look back on what this year brought in and what I see for the rest of 2021. It is good to clutter my mind regularly, so I appreciate your indulgence.
A year ago we got great news about a deal we made. The due diligence phase ended, the buyer waived any contingent liabilities and we proceeded to close the escrow account on July 17, 2020. Boom! Why do I mention this? As you can see, this offer was originally launched in February 2020. Great timing, right?
We quickly got an acceptable offer and signed the property just in time for the nation to hit the pause button. As expected, the deal exploded, we waited and we restarted marketing in June 2020.
Our new chronology proved forward-looking as buying activity had returned with a vengeance. Frankly, the boom in industrial demand has not stopped. If anything, it’s even foamy than it was a year ago. But why? Manufacturing and logistics concerns were deemed material. Spare parts were needed for everything to do with the house or the car.
And because people were stranded at home, they stared at their computer screens for hours, ordering goods. All of these factors have caused businesses – that make and ship things – to explode with commerce.
What takes so long I had a nice chat yesterday with a moving and storage company that I network with. He had just visited a technology company in the Inland Empire that was changing. Apparently, it was decided to work largely remotely, and hence their earlier, stocky line of office suites is no longer needed. They will try to find a surrogate mother to replace her tenancy. This is a classic example of the decisions office users will make over the course of 2021.
Now that we have a clearer way forward (to the next speed bump), people may or may not come back to the office. We have a much better picture of exactly how many square meters the operation requires. But the market turmoil caused by lockdowns has created some uncertainty. There are decision blocks. Long-term obligations – such as a multi-year lease extension – are being postponed.
Wayne Gretzky said: “I skate where the puck is, not where it was.” 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 do with commercial real estate? Just this much: It is next to impossible to predict where rental rates and sales prices will be in the coming months! Especially for inventory that is planned or under construction.
Granted, the prices will be higher, but how much higher? This enormous burden falls on commercial real estate professionals, who must provide appropriate advice to clients. After all, we don’t want to leave shekels on the sideboard. However, job vacancies are expensive.
So when you press – which can result in a delayed occupancy – is it worth the effort? During this time, I generally recommend pricing that has yet to be determined, which is unfortunately a minor slip-up. Residents like to negotiate from an established ask vs. “You tell us what it’s worth to you”.
Let’s repeat that next January – the predictions, not the pandemic – and see how accurate we were, right?
Allen C. Buchanan, SIOR, is a Principal at Lee & Associates Commercial Real Estate Services, Orange. He can be reached at [email protected] or 714.564.7104.