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Monday, January 24, 2022

my holiday wish list for commercial real estate

With Thanksgiving a recent memory, Hanukkah is in full swing, and Christmas is less than 30 days away… it’s time for some holiday spirit!

Countless kids around the world, including five of our grandchildren, are making their list. So I thought it would be fun to lay out five of my hopes for the 2022 commercial real estate market — aka my gift list for this coming year.

So, with no further ado, here goes.

A more balanced market. Industrial real estate – buildings where people make, store and ship things – has been shedding tears for the past six years. Currently, less than 1-in-100 structures are without any occupants!

We find a sharp imbalance – with supply exceeding demand, lack of new manufacturing, changes in the way consumers shop and an over-appetite for goods. Pricing for the offerings has skyrocketed as a result and many people wonder if the fares are sustainable.

So I want a little more discretion.

Disappearance of office uncertainty. I‘Often the opinion is, a transaction occurs when the activity is increasing or decreasing. But uncertainty is a killer for businesses relying on movement.

The market has seen some big office deals by Amazon — like buying the former Orange County Register printing plant site in Santa Ana and Bank of America’s premises in Bray. But, a repurpose is in store for both. Former suites housing executives from middle management to clerical staff, will be replaced by countless blue delivery vans.

The pressures of the pandemic changed the paradigm of the office. Companies coped with a “hybrid” approach that required smaller footprints, virtual workplaces, and less collaborative layouts.

Wishing for some long term leases on large blocks of offices here.

Port problem solved. Talk about a perfect storm that’s like an anaconda consuming a Thanksgiving meal or six: the bulge of e-commerce containers that are slowly moving through the supply chain.

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More people told me about the reasons than I did. Simply, all points of the supply chain have collapsed – leading to huge delays, shortages and increasing price tags. Certainly some laxity in regulation would help. A little more warehouse space can help, too. Asking the US to pause your shopping for a while?

I wish a steady flow of goods by the 4th of July.

Consistently low interest rates. Rising interest rates can do the best for us – like breaking the bar. But, wow! How incredibly painful it is for an economy dependent on cheap money.

Our 10-year Treasury rate – the benchmark for commercial real estate lending – has been hovering in the low 1% range for a few years now. Great for borrowers, but terrible for savers. As our population grows and more of us are on fixed income, the jump in returns will be welcome. Don’t forget, though, that the $1.2 trillion bag of stimulus gifts will pay off. Higher rates will make payback more expensive.

All in all, I wish there would be more.

a more diverse industry. Commercial real estate brokerages have historically been dominated by men. However, the two fall conferences we attended provided evidence of change.

I was thrilled to see more than 40% of women and minorities at the Commercial Real Estate Influencers Summit and Society of Industrial and Office Realtors Global Event.

I wish the face of commercial real estate to reflect our world.

Alan C. Buchanan is principal of Lee & Associates Commercial Real Estate Services in SIOR, Orange. He can be contacted at [email protected] or 714.564.7104.

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