Always Be Lookin’

In conditions like these, it pays to stay on your toes and be current on what is happening in your preferred area. We recommend that you always be lookin’ for space as you would if you had to move in the next six months. 

Those were our words back in 2017 when the industrial market had a much bigger head of steam than it does today. Vacancy was low, demand was off the charts, annual rent growth was in double-digits and mortgage money was cheap. Now, the market is a mirror image of itself back then. Vacancy is rising, rent growth is flat, demand is limping along and mortgage interest rates have doubled. Still, that advice is as valid now as it was then.

Why is that? The importance of being situationally aware cannot be understated. Every set of market dynamics signals opportunities for some and challenges for others. 8 years ago, tenants stood in line to be taken advantage of. Landlords simply held all the cards, and even functionally obsolete space that sits vacant for months today, leased in a matter of hours or days back then. 

Owner/user sales prices were going up so fast that it was nearly impossible to estimate a property’s value before bringing it to market. So, most properties didn’t even have an asking price, yet all were pursued by at least a handful of buyers and were sold quickly at a hefty premium to the last comp. Simply put, there had never been a better time to be a property seller or landlord.

So, back then it only made sense to be ready to pull the trigger at all times even if your business didn’t need space because windows of opportunity opened and closed so quickly. The sense of urgency was palpable then, but is less so today, at least in terms of building choice and the pressure of time. Properties offered for lease have proliferated, and even the highest quality buildings are taking months to lease up because tenants are no longer clamoring over one another to be first in line. 

To a lesser degree, the sales market is in similar shape, but for a different reason. If you want to buy a 20,000-square-foot building, there’s inventory to choose from. However, the challenge to completing the sale is two-fold. First, prices are still very close to the market peak of mid-2022. Secondly, the cost of borrowing has skyrocketed since the Fed put the brakes on the economy to stop inflation. That said, property values are finally beginning to soften, though not by enough to fully offset higher borrowing cost. Interestingly though, the yield on the 10-year Treasury Note, the key benchmark for setting commercial property mortgage rates, has fallen by over 60 basis points to under 4.2% in just the past few weeks. If that trend continues, mortgage rates will be back in the high-5% range again from over 6.5% just a month ago. 

So, a potential buyer who is always looking and who keeps his financial records up-to-date and maintains his pre-qualified status with his lender, could soon be in position to buy at a lower price and reduced borrowing cost; a good combination. Likewise, a business owner looking to increase his operating efficiency by leasing more functional space, is equally well-advised to know what is available at all times. The right building, optimally configured, could show up on the radar at any time, and he may find a landlord willing to make substantial concessions to mitigate the cost of relocation.

On more than one occasion, we have made mention of the inclination of most business owners to think of their space as a place to put their business rather than see it as an integral component of their business. The right location can make a business more efficient and more profitable, while the wrong one can decrease efficiency and shrink the bottom line. The big difference today versus 8 years ago is the fact that the right building is probably available and ready for occupancy today.

Our job is to be your eyes and ears and to keep you informed about current opportunities and trends that you can exploit to your advantage. Too often, commercial real estate professionals are perceived as trans-actors rather than as advisors or consultants. The good ones, and we like to count ourselves as part of that group, embrace the advisory role over the transaction model. While we have completed thousands of lease and sale transactions over more than four decades, most of our time is spent on consultation rather than transaction management. We look forward to helping you to always be lookin’ no matter what your current circumstances are. Just give us a call to get started.