Activity Levels

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.