They say that time flies when you’re having fun. That may be why 2020 seemed to drag on forever.
No one had any idea what the country would go through when the ball dropped at Times Square last New Year’s Eve. The initial lockdown in March had a surreal quality to it. We thought it might last a few weeks. Then the reality of the virus began to reshape the political landscape and our real troubles began. Now here we are ten months later and we are back in lockdown mode again. Multiple vaccines are making their way into the arms of health workers and the elderly. That’s a hopeful sign, but it will months before a significant segment of the population is inoculated against the coronavirus.
Bad news aside, the economy has fought its way back into growth mode, industry has rebounded and the e-commerce sector has experienced explosive growth. The unemployment rate has fallen sharply from its peak in Q2, though the food service, hospitality and other travel-related industries remain in tough shape. Another relief bill is in the works, but the politics are thick and we await finally approval as the year comes to an end.
The shining star of the commercial real estate asset class has been industrial sector. It has literally blown through the virus-induced recession like a bulldozer through a rickety wood fence. We are just amazed by the resiliency and courage of industrial business owners who continued full steam ahead since the beginning of the crisis. After an initial slowdown in March and April, market activity picked up quickly. If you looked at the market statistics for 2020 without knowing about the pandemic, you’d never know we were suffering from an extreme economic shock.
Pricing on quality industrial product, both for sale and lease, has continued to rise. The boost in e-commerce activity filled whatever gap in demand there may have otherwise been from sectors harder hit by the pandemic. Vacancy has remained near historic lows and net absorption has remained in positive territory. Low mortgage interest rates have owner-user buyers competing aggressively for quality buildings. The chance to fix occupancy cost for 25 years is too compelling to ignore.
So, if you’ve been wondering if this is time to take action, things really haven’t changed much in terms of market dynamics. As strange as it seems, remains business as usual when it comes to owning or leasing industrial real estate in Orange County, and we expect next year to be more of the same. The wild card is our new president’s tax proposals, which we have been writing about in recent weeks. Mr. Biden campaigned on a platform of tax hikes that could be game-changers for the commercial real estate sector. So, if you haven’t done so already, it might be a good idea to check in with your financial advisors to do some contingency planning, just in case Biden’s ideas turn into law.
We will soon have our 4th quarter market metrics tabulated and we’ll make sure you get the full report the day it’s ready. We are always here to help if you need us. Happy New Year to all.