In conversations with friends, colleagues, prospects, and the like, I get asked this question frequently: How is the commercial real estate market? My answer varies based upon the perspective of the questioner.
Specifically, if you’re an owner/investor in a building where people make and ship things – AKA an industrial building – you’ve experienced exponential growth in values. Chances are, the rent you receive from your tenant has outpaced our crazy inflationary uptick. The flip side? As an occupant of said industrial property, you’re facing dramatically increased costs for 2022.
If relocation is ahead, plan on very slim pickings of places to move.
As an owner of a suite of offices, you’re facing a different condition. You see, the uncertainty fraught by the pandemic has stalled movement. Consequently, most are writing shorter leases with little (if any) rent growth to keep spaces filled and cash flowing. Tenants who can predict needs and are willing to commit to longer terms are finding significant motivation from landlords.
Retail – wow! That subject is column-worthy by itself.
Now., how do we as commercial real estate practitioners deal with these meandering market metrics? Well, once again, it’s specialty-focused – office, industrial, or retail and importantly – which side of the transaction you serve.
Our team’s focus is approximately 40% owner and 60% occupant representation. If we’re on one side we rarely straddle the aisle and create a dual agency.
Quick recap. Dual agency is allowed in California real estate transactions and refers to one broker repping both buyer and seller.
Our sale and lease assignments – where we are engaged to assist an owner find a buyer or tenant for a vacant building – are akin to attending a 5-year-old’s birthday. Chaos and multiple gifts ensue. Myriad inquiries, requests for showings, multiple offers, overbids, and vetting occupant qualifications soon follow. All we need now is a bounce house.
We recently took a listing in Santa Ana, launching on a Friday. In just three days we had 61 inquiries, 22 tours, five offers – four at asking price or more. Yeah. It was insane! And we hadn’t even cut the cake.
A different effort is involved with our occupant needs. We resort to hand-to-hand combat. By this I mean, air support is over and a search of the multiple listings yields no alternatives. The heavy artillery has been expended, conversations with active brokers who may have something downstream don’t. Ammunition is exhausted, a quick mailer to the market also comes up crickets.
What remains is mano y mano. We pull a list of everything – occupied and available – and start dialing property owners, hoping to catch a break. Two such searches have now eclipsed one year! Fortunately, we prepared their expectations.
Another tactic we employ is a very frank conversation on how to stay put and make do. Adding an office or two, taking advantage of underutilized stacking, outsourcing a piece of the operation – all can achieve this.
I guess we could simply respond – when asked – how’s the market? Well, it depends!
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.
