I’ve often been asked if the
commercial real estate business is seasonal. By this, I mean, do we see an uptick
in activity comparable to our residential brethren. As you’re aware, house
sales tend to ebb and flow based upon seasonality. As the summer months
approach and families near the end of school, they use the summer months as an
advantageous time to relocate.
Commercially - short of an economic
downturn - we tend to see several peaks and lows with leasing and sales volume.
As the year begins, we encounter companies who are interested in finding a new
location. Our activity tends to wain preceding tax time from mid March to mid
April. We experience robust volume through the middle of June. Vacation time
from mid June through Labor Day is historically slow. Finally, as autumn
approaches, and before the holidays begin, there is a mad dash for the exits to
get transactions accomplished before the end of the year.
However, this year has been a bit
different. We should be slow now as we are in the vacation mode for most
businesses. But, we have seen a fairly significant increase in tire kicking
this summer.
As I have written in this column, ad
nauseam, we are experiencing a glut of class A logistics inventory above
100,000 ft.². Orange County certainly has more supply than the present demand
but this trend is much more acute in the Inland Empire areas. Within the last
30 days, we have seen a tremendous amount of space leave the market as
evidenced by five deals in Huntington Beach and Garden Grove and a comparable
number in the IE.
So what gives? Here are my theories
as to why.
Pricing:
One of the primary factors driving
the recent uptick in activity is pricing. With an oversupply of large logistics
spaces, landlords are becoming more flexible in their negotiations. This has
created attractive opportunities for companies looking to secure favorable
lease terms. Lower rents and attractive concessions are enticing businesses to
move now rather than wait. We’ve seen a decrease in asking lease rates of
approximately 18%. Owners are coupling these aggressive rates with an abundance
of free rent and enhanced brokerage fees.
Chinese companies
absorbing space for inventory:
Another contributing factor is the
activity from Chinese companies. These firms are strategically securing
warehouse space to better manage their inventory. The Trump presidency had a
significant impact on tariffs, with increased tariffs on Chinese goods
prompting these companies to rethink their logistics strategies. With the
events of last weekend, adding some clarity to the November Choice, Chinese
third-party logistics providers are securing as much space as possible to move
inventory into the United States pending future tariffs. This is an interesting
debt because our election is still over three months away. With global supply
chains already experiencing disruptions, having additional storage capacity
close to major markets like Southern California has become even more
advantageous. This combination of tariff impacts and supply chain challenges
has led to a noticeable increase in leasing activity, particularly in the
logistics sector. Within the last 30 days, Chinese occupants have consumed over
2,000,000 ft.² of space in four transactions.
Pent-Up Demand:
Finally, there is a significant
amount of pent-up demand. The uncertainties of the past few years, including
economic fluctuations and the pandemic, have caused many businesses to delay
their expansion plans. Additionally, the Trump presidency and its impact on
tariffs played a crucial role. Increased tariffs on goods imported from China
prompted many companies to rethink their supply chains and logistics
strategies. As a result, businesses are now moving forward with their plans to
secure warehouse space in strategic locations like Southern California. This
shift has led to a surge of activity as companies seek to mitigate the impact
of tariffs and capitalize on current market conditions.
While commercial real estate may not
follow the same seasonal patterns as residential real estate, there are
certainly periods of increased and decreased activity. This year, contrary to
the usual summer slowdown, we are witnessing an unexpected boost in leasing and
sales. Factors such as attractive pricing, strategic moves by Chinese
companies, and pent-up demand are driving this trend.
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.
Occasionally, it’s a great idea
to clear your mind, empty the inbox, and allow your thoughts to be random.
Today, dear readers is such a moment.
It's fascinating how the mind can
wander through a labyrinth of thoughts, each one seemingly unrelated yet all
part of the same intricate web of our daily lives.
Today, I'm embracing the
randomness and sharing a glimpse into the eclectic musings of a commercial real
estate broker's mind.
Someone famous once opined,
they’re only opinions, however, they’re all mine.
Here goes.
Presidential
Election
The political climate is heating
up as we approach the next presidential election. The decisions made at the
polls will ripple through various sectors, including real estate. Policies on
taxes, environmental regulations, and economic incentives could dramatically
shape the landscape of commercial real estate. It’s a waiting game now, as we
brace for the changes that a new administration might bring.
Interest
Rates
Interest rates are the heartbeat
of real estate investment. Recently, there’s been a lot of speculation about
whether the Federal Reserve will adjust rates again. Lower rates have made
borrowing cheaper, fueling investment and development. However, the potential
for rising rates could cool the market, making it more challenging for buyers
to secure favorable financing terms.
Owner
Occupant Activity
There’s a noticeable trend of
increased owner-occupant activity. More businesses are opting to purchase their
spaces rather than lease. This shift is driven by the desire for long-term
stability and control over their work environments. It also reflects confidence
in their growth prospects and a strategic move to build equity in their
properties.
Vacation
Schedule
Even commercial real estate
brokers need to unwind. Planning a vacation amidst a busy schedule can be a
challenge, but it’s essential for maintaining balance. Whether it’s a beach
getaway, a mountain retreat, or exploring a new city, taking time off to recharge
is crucial. This summer, I’m hoping to strike that perfect balance between work
and relaxation.
What to
Expect This Summer
Summer often brings a mix of
excitement and uncertainty. The market tends to slow down slightly as people
take vacations, but it also presents opportunities. This year, I’m anticipating
a few surprises – perhaps an unexpected deal or a new trend emerging. Staying
adaptable and ready to seize opportunities is key.
Embracing the randomness allows
for a broader perspective. It’s a reminder that in the midst of our busy lives,
taking a moment to reflect on the myriad thoughts and events can be incredibly
grounding. Here’s to the journey and all the unpredictability it brings!
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.
