For the past few weeks, we have been doing our best to keep you informed on the business impact of the Covid-19 virus and the handful of government programs being rolled out to counter its effects. So, we haven’t had much good news to send your way to date, but that may be changing soon.
Even though the entire state is still operating under Governor Newsom’s stay-at-home order, the daily headlines are beginning to shift toward the potential of opening our economy back up so that Californians can get back to work.
Promising new medical studies are being announced every day and that is boosting public confidence that those in the medical community are getting closer to figuring the whole thing out. In the meantime, protests are popping up around the country as an increasing number of Americans are losing patience and confidence in blanket orders that may not reflect their local conditions.
Orange County, thus far, has fared well compared to Los Angeles County, and California, thankfully, has taken far less of a hit than some of our sister states on the other coast. To be sure, the argument over how to ease the economy back to normal operation will be heated and lengthy. But, that’s more encouraging and, in the end, more productive for the employers and employees who are eager to get back to work.
With that in mind, we have been busy reaching out to everyone we know who will be part of the recovery process. Bankers, lawyers, accountants, contractors, title companies, trade organizations and many other service sector professions will all play a part in breathing new life into the economy once we are back in business. We are interested in everything they have to say and we are doing our best to keep them informed on the commercial real estate market from our own perspective. As a result of our outreach, we are learning a lot every day and we are using what we learn to develop our own strategy on how to re-engage with our clients to best position them for success going forward.
So, this may be the time to reach out to your customers, suppliers, vendors and financial advisors to hear what they have say about going back on offense. Every one of you will face your own set of challenges in doing so, and those who have already had a hand in the success of your business are probably eager to so again. All you need to do is ask.
We are doing our best to anticipate likely outcomes even though we don’t really have enough to go on. That’s why we talk to as many people we can, listen to their opinions and return the favor by sharing our own. Working together, we will all have more information upon which to make informed decisions.
Frankly, we don’t know what will happen to transaction activity, vacancy, net absorption, lease rates or sales prices in the short term. There is just not enough data to support a position. What we can say is that the market has been shocked in a way we’ve never seen before and it’s probably going to take a while to sort things out. In the meantime, new opportunities will arise. A tenant who has been unable to find a good building just may find himself with a new home for his business that makes him operate more efficiently than ever. An owner/user buyer who has competed with and lost to other bidders for a good quality property to move his business into, may finally acquire a functional building with a 25-year loan at just 3% interest.
It is important to note that even if lease rates and sales prices took a 15% hit they would still be above the previous peak back in 2007. The vacancy rate could triple in Orange County and would still be in the 7% range. And with construction of new inventory at a near standstill for years, the market was far from overbuilt going into this crisis. That’s how tight things had gotten before our Black Swan landed on the pond.
So, maybe it’s time to go back on offense, anticipate an end to this crisis and focus our energy on making the most of the new opportunities that are not yet visible. We are here to help you in any way possible. Just give us a call.