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Wild stock market
gyrations. A trade war with China. Housing metrics that would suggest a shift,
large corporations announcing dramatic layoffs, rising interest rates combined
with record low unemployment, a media touting the booming economy, and a
recovery spanning nine years. So where are we headed? Great question. And one
that is pondered by hundreds of small business owners every day.
A pall of uncertainty
now shrouds our consciousness and permeates our conversations. Uncertainty. The
circumstance that can change a robust commercial real estate market to a tepid
one in no time.
When folks are
uncertain - decisions are postponed. Postponing decisions - adding workers,
buying new equipment, expanding into another market, or acquiring a competitor
create a holding pattern for new building space needs. Given enough hesitation
- our commercial real estate market freezes and lease and sale transactions are
delayed.
I am certainly
not seeing a rush for the exits as we witnessed in 2008 and 2009. But, the
entrepreneurs I counsel are certainly making a note of the exit’s locations.
So, what should
you do if you’re contemplating a commercial real estate move? I would make the
following suggestions.
If you are a
seller. Examine why. Be
realistic. Don’t wait. You’ve elected to move your company out of state and
determined your California location is excess - a good reason to sell. Your
neighbor’s building traded at a record high number and if you can get a similar
price - you’re a seller. If not - you’ll hold. Not a good reason.
Marketing
time, variance in ask vs take, number of buyers inquiring - all have morphed
from a seller’s advantage to a buyer’s. Certainly deals are transacting - but
in more neutral setting. My opinion. We will encounter a much different selling
environment at the end of next year than we are seeing today. Sales will occur
- but at much more realistic prices. So if your selling for the right reasons -
do so now.
If you are a
buyer. Be aggressive.
Hold firm. Walk away. The era of crazy asking prices followed by multiple
offers and feeding frenzies are behind us. In order to sell these days - a
seller must respond to the offers he receives - even if they are below his
expectations. Sure. Limited availability means fewer choices - but that will
change. I’ve seen a shift toward bringing buildings to market NOW vs waiting. A
few more availabilities coming on line will quickly balance the supply side and
force sellers to come to the table.
If your lease
expires next year. Understand your
value. Know the market. Be aware of your alternatives. To replace your tenancy
costs money - in some cases 20-25% of the total amount of your lease. If you
bolt - your owner must now refurbish your space, lay fallow, concede some rent,
and pay a broker to achieve a market rent. In a changing environment, the time
needed to locate a new resident increases - which is lost revenue. Use this to
your advantage to drive the best deal. Finding an adamant owner may generate a
compromise in a higher lease rate but for a shorter duration.
Allen C. Buchanan,
SIOR is a principal with Lee & Associates Commercial Real Estate Services. He can
be reached at 714.564.7104 or abuchanan@lee-associates.com his website is allencbuchanan.com