Happy New Year! If you’re reading this, 2021 is now a footnote, the Amazon boxes are broken down awaiting delayed pickup, and many of your resolutions have already been broken. Wow, that didn’t take long!
I took a look back at my predictions for 2021. My column was published after Thanksgiving and before Christmas 2020. Some 13 months ago. So, how’d I do? Spoiler alert. I was a freakin Nostradamus!
From December 2020: What can we expect of the commercial real estate landscape next year? Someone famous once opined – “well, they’re only predictions, but they’re all mine.” So please bear with me as I get my Nostradamus on.
Bullish industrial owners
We represent an importer. Warehoused are goods they distribute. He’s slammed for space – thus our engagement to find more. Recently our full-priced offer was met with a reluctance by the owner to grant a financing contingency. I’ve seen this with investment properties but never with owner occupied real estate.
You see, time is needed for a lender to nod yay or nay. Very few occupants have idle cash sitting in an account awaiting a purchase. Today, we nailed it! The same occupant is still in the market. Prices have hopped 50% in 2021!
Shorter leases. Until the aroma of economic uncertainly ceases to waft, expect occupants to seek commitments of fewer years than before. Ten-year leases will become five and so on. Today. This is certainly the case for office suite deals. Expect more of this in 2022.
Clarity in the office market
I suspect by this time next year the runway will be clear and office occupants will have a direction – up or down. As previously mentioned, uncertainty is a killer for any business trying to gauge a need for space. But, as we are seeing in retail storefronts with their downward trajectory at least we can plan.
This year, the office landscape has seen fits and starts. Mid-year as the state fully reopened, it was derailed by the delta variant. And now with omicron sweeping the caseload, it’s anyone’s guess when businesses will fully return to the office.
Low interest rates
The Biden administration will most likely be gridlocked by a Republican Senate. With the House near balanced, a Democrat in the White House and a red Senate, expect the Federal Reserve to keep interest rates low. Our 10-year Treasuries – a bellwether for commercial real estate loans – are expected to wallow at historic bottoms as well.
So how about today? Spot on! Although, are those storm clouds massing? Yessir. Those are higher rates on the horizon.
Burgeoning e-commerce
If the Buchanan household is any indication, internet ordering and “just in time shipments” to your door will continue with a vengeance. Recently, we purchased a new mattress online. The next day, two beefy gentlemen ushered it into our upstairs master suite.
Will someone kindly develop a box compactor for home use? Something between the kitchen trash masher and the ones in Albertson’s storeroom would be awesome. There’s your million-dollar business idea for 2021! You’re welcome.
Today? Boom times!
Continued safety protocols
As the pandemic blossomed in March, predicted were temperature checkpoints, masks, hand-washing stations and distancing. Actually, it was not terribly futuristic. Observed was what other countries were employing. I am startled at how quickly we adapted, however. Akin to airline changes post 9/11, we can’t simply attend a concert, eat in a restaurant or shop without a face covering. Shocking. Expect more in 2021.
Today: A new mask mandate, proof of vaxxing, 2020 redux? Maybe.
An innovative technological offering?
Commercial real estate is rarely disrupted by something shiny and new. CoStar in the mid-1990s was probably the last big thing. With CoStar’s acquisition of Ten-X this year we could see a more robust platform from which to transact. At the site’s disposal now is available inventory, what’s recently sold, and an auction template. Hmmm, so where do brokers fit in?
Look no farther than our residential counterparts to get a glimpse. Matterport tours, consumer-facing available inventory, and accurate internet loan processing lessen the need for “buy-side” representatives.
Today: Well, I missed this one. Unless of course, it’ll appear in 2022. Tick tock?
Scant industrial vacancy
I see nothing on our immediate horizon that would cause industrial availability to rise.
The drivers of increased square footage could be new construction. Nope! There’s not enough vacant land in the OC, for one, to stem demand. Plus, it takes an eternity to get a new development entitled. Business failures? Probably not. We’ve just endured the greatest health crises in 100 years and many industries thrived.
Exodus out of state? Maybe. We’ve definitely seen some movement. However, our local businesses are largely private. They’re your neighbors with a rich history and deep-rooted residency in SoCal.
A financial meltdown? Yeah. That could do it. 2009 again. I certainly hope not.
Today? Again, nailed it! Frankly, it’ll take something catastrophic to get us back to a normal vacancy of 5%. Between you and me – I’d prefer the scant vacancy!
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.
