All of us in the business community must deal with uncertainty no matter what condition our local, state and national economies are in.
Every business decision we make involves a calculation of risk, and that risk is mitigated by our level of knowledge about the factors most likely to impact profitability. In a rapidly expanding economy, risk may be minimized by the natural rise in demand for our product or service. However, our current economy, while back in expansion mode, is experiencing an alarming spike inflation, supply chain problems and a shortage of workers to fill key positions, among other things. Add the political firestorm we are going through, and it’s easy to understand why so many business owners are recalibrating their appetite for risk.
What to do about their real estate is high on the list of risks to manage. After nearly 12 years of a rapid and steady increase in property values, many owner-users and third-party investors are taking a hard look at moving up their disposition strategies to take advantage of record high prices as a way of mitigating the risk associated with other economic threats. They see taking some profit chips off the table as a hedge worth considering.
The key driver of the run-up in pricing has been the low cost of capital, the direct result of the Fed’s efforts to stimulate economic growth. But, with inflation back in the picture, our central bankers may have to reverse course in the near term to stave off another dangerous inflationary cycle. Add the prospect of a major tax hike now being debated in Congress that could further divert the flow of business capital, and you’ve got the key ingredients to make a real estate market correction. At minimum, this is cause for concern that, we believe, should be taken seriously. While it is possible that the current spike in inflation is transitory and the American Families Plan gets scuttled or pared back, it only makes sense to consider alternate courses of action as it relates to one of the key components of your wealth creation and preservation plan.
When recession last hit the industrial real estate market in 2008, market activity dropped precipitously, causing a reduction in property values of 40% or more depending on building size, quality and location. In this recovery, the longest in history, the market regained all that it lost and is now more than 50% higher than it was at the previous peak in 2007. That is a clear signal to an increasing number of property owners who are now willing to get out while the market is still on the rise because they know it is impossible to perfectly time another market peak.
Whatever your threshold for risk may be in terms of your real estate holdings, having a full understanding of current conditions and trends is critical to making good and informed decisions. If you decided to sell your property today, you would see multiple offers and close at a record price. That much is certain. Whether or not that is the right thing to do for you is a question worth asking. As industrial property specialists, we would welcome the opportunity to work with you and your financial advisors to make sure your current strategy fits the situation on the ground.