Good year! If you’re reading this, 2021 is now a footnote, Amazon boxes are being broken down awaiting delayed pickup, and many of your resolutions have already been broken. Wow, that didn’t take long!
I went back to my forecast for 2021. My column was published after Thanksgiving and before Christmas 2020. About 13 months ago. So how did I do it? Spoiler alert. I was a Nostradamus freakin!
From December 2020: What can we expect from the commercial real estate landscape next year? Someone famous once said, âWell, these are just predictions, but they’re all mine. So please indulge me while I put on my Nostradamus.
Bullish industrial owners
We represent an importer. The goods they distribute are in storage. He clicked for space – hence our commitment to find more. Recently, our full price offer was met with reluctance on the part of the owner to grant a financing contingency. I have seen this with investment property, but never with owner occupied property.
You see, it takes a long time for a lender to nod or not. Very few occupants have unused cash in an account pending purchase. Today we succeeded! The same occupant is still on the market. Prices jumped 50% in 2021!
Shorter leases. Until the aroma of economic uncertainty stops floating around, expect occupants to seek out engagements of fewer years than before. Ten-year leases will become five and so on. Today. This is certainly the case for office suite offers. Expect more of that in 2022.
Clarity in the office market
I suspect that at this time next year the runway will be cleared and the occupants of the offices will have a direction – up or down. As mentioned earlier, uncertainty is killer for any business trying to assess a need for space. But, as we see in the storefronts of retail stores with their downward trajectory, we can at least plan ahead.
This year, the office landscape has seen some upheavals. In the middle of the year, as the state fully reopens, it derailed through the delta variant. And now, with omicron sweeping the workload, anyone can guess when businesses will be fully returning to the office.
Low interest rates
The Biden administration will most likely be blocked by a Republican Senate. With a nearly balanced House, a Democrat in the White House, and a Red Senate, expect the Federal Reserve to keep interest rates low. Our 10-year Treasuries – an indicator for commercial real estate lending – are also expected to wallow at historic lows.
And today ? On the spot ! However, are these storm clouds massing? Yes sir. These are higher rates on the horizon.
If Buchanan Housekeeping is any indication, Internet orders and “just-in-time” shipments to your door will continue with a vengeance. Recently we bought a new mattress online. The next day, two beefy gentlemen ushered him into our upstairs master suite.
Will anyone want to develop a box compactor for home use? Something between the kitchen potato masher and the ones in the Albertson reserve would be great. Here’s your million dollar business idea for 2021! Please.
Today? Boom time!
Continuous security protocols
As the pandemic blossomed in March, temperature checkpoints, masks, hand washing stations and distancing were planned. In fact, it wasn’t terribly futuristic. We looked at what other countries were using. However, I am surprised at how quickly we have adapted. Like the airline changes after 9/11, we can’t just go to a concert, eat in a restaurant, or go shopping without a face covering. Shocking. Expect more in 2021.
Today: A new mask mandate, proof of vaxxing, redux 2020? May be.
An innovative technological offer?
Commercial real estate is rarely disrupted by anything shiny and new. CoStar in the mid-1990s was probably the last big thing. With the acquisition of Ten-X by CoStar this year, we were able to see a more robust platform from which to trade. The site now has inventory available, what was recently sold, and an auction template. Hmmm, so where are the brokers?
Look no further than our residential counterparts for an overview. Matterport visits, on-hand consumer inventory, and accurate Internet loan processing reduce the need for âbuy-sideâ representatives.
Today: Well, I missed this one. Unless of course it does not appear in 2022. Tic tac?
Little industrial vacancy
I do not see anything on our immediate horizon that would increase industrial availability.
The drivers of the increase in square footage could be new construction. No! There is not enough vacant land in the CO, for one, to stem the demand. Plus, it takes forever to get a new titled development. Business failures? Probably not. We have just gone through the biggest health crises in 100 years and many industries have thrived.
Exodus out of state? May be. We have certainly seen some movement. However, our local businesses are largely private. They are your neighbors with a rich history and a residence deeply rooted in SoCal.
A financial crisis? Yeah. It could do it. 2009 again. I sure hope not.
Today? Again, nailed! Frankly, it will take something catastrophic to get us back to a normal 5% vacancy. Between you and me, I would prefer the little vacancy!
Allen C. Buchanan, SIOR, is Principal at Lee & Associates Commercial Real Estate Services at Orange. He can be reached at [email protected] or 714.564.7104.