Wild stock market gyrations. A trade war with China. Housing metrics that would suggest a shift, large corporations announcing dramatic layoffs, rising interest rates combined with record low unemployment, a media touting the booming economy, and a recovery spanning nine years. So where are we headed? Great question. And one that is pondered by hundreds of small business owners every day.
A pall of uncertainty now shrouds our consciousness and permeates our conversations. Uncertainty. The circumstance that can change a robust commercial real estate market to a tepid one in no time.
When folks are uncertain – decisions are postponed. Postponing decisions – adding workers, buying new equipment, expanding into another market, or acquiring a competitor create a holding pattern for new building space needs. Given enough hesitation – our commercial real estate market freezes and lease and sale transactions are delayed.
I am certainly not seeing a rush for the exits as we witnessed in 2008 and 2009, but the entrepreneurs I counsel are certainly making a note of the exit’s locations.
So, what should you do if you’re contemplating a commercial real estate move? I would make the following suggestions.
If you are a seller. Examine why. Be realistic. Don’t wait. You’ve elected to move your company out of state and determined your California location is excess – a good reason to sell. Your neighbor’s building traded at a record high number and if you can get a similar price – you’re a seller. If not – you’ll hold. Not a good reason.
Marketing time, variance in ask vs take, number of buyers inquiring – all have morphed from a seller’s advantage to a buyer’s. Certainly, deals are transacting – but in more neutral setting. My opinion. We will encounter a much different selling environment at the end of next year than we are seeing today. Sales will occur – but at much more realistic prices. So, if your selling for the right reasons – do so now.
If you are a buyer. Be aggressive. Hold firm. Walk away. The era of crazy asking prices followed by multiple offers and feeding frenzies are behind us. In order to sell these days – a seller must respond to the offers he receives – even if they are below his expectations. Sure. Limited availability means fewer choices – but that will change. I’ve seen a shift toward bringing buildings to market NOW vs waiting. A few more availabilities coming on line will quickly balance the supply side and force sellers to come to the table.
If your lease expires next year. Understand your value. Know the market. Be aware of your alternatives. To replace your tenancy costs money – in some cases 20-25% of the total amount of your lease. If you bolt – your owner must now refurbish your space, lay fallow, concede some rent, and pay a broker to achieve a market rent. In a changing environment, the time needed to locate a new resident increases – which is lost revenue. Use this to your advantage to drive the best deal. Finding an adamant owner may generate a compromise in a higher lease rate but for a shorter duration.