I
normally wouldn’t do this in May. Typically, I’d wait until next year to do a
look back on my 2022 predictions. However, things are moving so fast these days
- a year is eclipsed in 90 days. And by that I mean the stodgy, slow moving old
business of commercial real estate is progressing at warp speed and is vastly
different than it was in January 2022. With inflation at a forty year high, a
Russian invasion of Ukraine, wild stock market gyrations, political unrest, and
folks back to work - we are witnessing life altering changes in our world. So,
I believed this check was important.
2022 Prediction - Industrial rents. They’ll
increase. Next bullet point. However, I’ve a few more words, so stay with me.
We track Class A inventory for an upcoming assignment. What’s that, you may
ask? We describe Class A inventory as buildings constructed since 2000. In this
way we are able to weed out functionally obsolete structures that may exist in
the market. In Orange County, there are eight new developments proposed or under
construction totaling over 2,700,000. A staggering number until you factor in
what’s available today. Ummm. That would be one. That’s correct! One available.
Demand is still strong so nowhere for rents to go but up. Update - I’m
shocked to see industrial rents surpass two dollars per square foot triple net.
Just to put this in context, industrial rents in 2010 were approximately 25% of
this. Yes! That’s correct 25% of what they are today.
2022 Prediction - Developer appetite. With industrial rents increasing, interest rates still low - that will change this year - plentiful capital seeking a place to reside, and an acute shortage of land from which to produce concrete caverns - a conundrum continues. An industrial development at your neighborhood Sear’s store? A campus built for industries who’ve left the area? All will be targets this year. Update - Developers still have ovation appetite for sites with which to add value. There are rumored to be several in play presently at absolutely eye-popping land values. More on this to come.
2022 Prediction - The office. No, not the series - the market. Recently, I read this with interest in these pages - “A new report from Ladders, a career site for high-paying jobs, says things will likely stay that way. In fact, Ladders predicts that 25% of all professional jobs that pay $80,000 or more will be remote by the end of 2022.” Wow! My suspicion is it will be greater than that. Anecdotally, take our office as an example. We own a 21,700 square foot, two story location. We occupy the upstairs and a portion of the down for about 13,000 square feet. When locked and loaded - 49-52 folks commuted in each day. Now? Probably half regularly attend. My team works remotely as do others. Adjusting to this change will be smaller footprints and more multi-use spaces. Update - there is some talk among the big players that a return to the office is eminent. Mention frequently is the difficulty in maintaining a culture with a remote workforce. We haven’t experienced this so much in orange county. I believe we are headed for a hybrid between remote and in person office occupancy.
2022 Prediction - Retail slowdown? We all know that, big fella. How’s that prescient? Actually, what slowed during our two year pandemic fueled sabbatical were trips to the store. Retail sales actually increased as we bought tons of stuff from our home keyboards. But, one of our clients, corporately based in NYC, is a tremendous gauge on the brick and mortar retail business. By that I mean, destinations such as Wal-Mart, Costco, Burlington, and the like. He’s sensed a REAL dip and predicts more to come. So we’ll see. Update - as you may have read, the largest e-commerce retailer – Amazon - recently put the kibosh on 200 projects in process. Their earnings are predicted to decline by 3% and they admitted they have over built their storage capacity. Consequently, any Amazon deal on the margin was postponed. What this foretells about brick and mortar retail will be interesting to observe.
2022 Prediction - Stagflation. What on Earth is that? According to Wikipedia -“In economics, stagflation or recession-inflation is a situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actions intended to lower inflation may exacerbate unemployment.” Hmmm. Inflation rates, high - check. Economic growth slowing - check. Unemployment high - check. By the way, you may be thinking - I thought unemployment was low, currently. Actually, the percent of the workforce NOT working is high. The statistics reported are only those who’ve filed claims - quite misleading. Update - Wow! That didn’t take long. With inflation running 8% annually and a decline in gross domestic product for the first quarter we already are in a stagflationary period. Not since the Jimmy Carter administration has this been a thing.
Things
I didn’t foresee: The invasion of Ukraine, the dramatic Amazon slow down, two
dollar industrial rents - were all not on my radar in January 2022. Now you
understand why a first quarter update was important.
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. His
website is allencbuchanan.blogspot.com.
2022 Prediction - Developer appetite. With industrial rents increasing, interest rates still low - that will change this year - plentiful capital seeking a place to reside, and an acute shortage of land from which to produce concrete caverns - a conundrum continues. An industrial development at your neighborhood Sear’s store? A campus built for industries who’ve left the area? All will be targets this year. Update - Developers still have ovation appetite for sites with which to add value. There are rumored to be several in play presently at absolutely eye-popping land values. More on this to come.
2022 Prediction - The office. No, not the series - the market. Recently, I read this with interest in these pages - “A new report from Ladders, a career site for high-paying jobs, says things will likely stay that way. In fact, Ladders predicts that 25% of all professional jobs that pay $80,000 or more will be remote by the end of 2022.” Wow! My suspicion is it will be greater than that. Anecdotally, take our office as an example. We own a 21,700 square foot, two story location. We occupy the upstairs and a portion of the down for about 13,000 square feet. When locked and loaded - 49-52 folks commuted in each day. Now? Probably half regularly attend. My team works remotely as do others. Adjusting to this change will be smaller footprints and more multi-use spaces. Update - there is some talk among the big players that a return to the office is eminent. Mention frequently is the difficulty in maintaining a culture with a remote workforce. We haven’t experienced this so much in orange county. I believe we are headed for a hybrid between remote and in person office occupancy.
2022 Prediction - Retail slowdown? We all know that, big fella. How’s that prescient? Actually, what slowed during our two year pandemic fueled sabbatical were trips to the store. Retail sales actually increased as we bought tons of stuff from our home keyboards. But, one of our clients, corporately based in NYC, is a tremendous gauge on the brick and mortar retail business. By that I mean, destinations such as Wal-Mart, Costco, Burlington, and the like. He’s sensed a REAL dip and predicts more to come. So we’ll see. Update - as you may have read, the largest e-commerce retailer – Amazon - recently put the kibosh on 200 projects in process. Their earnings are predicted to decline by 3% and they admitted they have over built their storage capacity. Consequently, any Amazon deal on the margin was postponed. What this foretells about brick and mortar retail will be interesting to observe.
2022 Prediction - Stagflation. What on Earth is that? According to Wikipedia -“In economics, stagflation or recession-inflation is a situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actions intended to lower inflation may exacerbate unemployment.” Hmmm. Inflation rates, high - check. Economic growth slowing - check. Unemployment high - check. By the way, you may be thinking - I thought unemployment was low, currently. Actually, the percent of the workforce NOT working is high. The statistics reported are only those who’ve filed claims - quite misleading. Update - Wow! That didn’t take long. With inflation running 8% annually and a decline in gross domestic product for the first quarter we already are in a stagflationary period. Not since the Jimmy Carter administration has this been a thing.
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