Greetings and Happy Labor Day! As September rolls in, Southern California undergoes a unique transformation – the replacement of lawn furniture in Home Depot with Christmas decorations. It’s a peculiar juxtaposition as college football just kicks off, and yet we anticipate the arrival of St. Nick on the next kickoff.
Nevertheless, fall is my favorite season. The temperature drops, leaves change color, days become shorter, and a series of holidays follow, ranging from Halloween and Thanksgiving to Christmas and New Year’s.
Now that summer travels are over and kids are back in school, is it too much to hope that the Pacific will refrain from brewing more hurricanes?
Let’s turn our attention to the remainder of the year. In this column, I will be discussing what the next four months have in store for commercial real estate owners and occupants.
Keeping an Eye on Interest Rates
The current borrowing rate for houses has surpassed 7%. Although this falls within historical averages, it is significantly higher compared to the sub-3% rates we witnessed in 2021. Consequently, there is a shortage of available houses for sale as individuals with low-interest loans are reluctant to sell, and new buyers struggle to afford today’s prices financed at higher rates.
Furthermore, commercial real estate borrowing is also affected. High interest rates hinder the financing of growth for small businesses, which rely on acquiring competitors, purchasing equipment, and leasing larger spaces.
It seems that our Federal Reserve is determined to combat inflation, but this can inadvertently lead to rising unemployment rates. When the expansion of businesses is hindered by higher interest rates, it creates uncertainty among business owners.
Class A Industrial Absorption
Amidst the clamor of new construction, there is a noticeable absence – a lack of tenants readily prepared to occupy these newly minted spaces.
This begs the question: why? The conditions that once fueled the previous industrial boom have changed, presenting new challenges. Gone are the days of localized manufacturers and logistics providers securing their own spaces through owner-occupied financing.
Instead, our market now caters to the needs of large-scale tenants.
However, this poses a conundrum. These tenants require a certain degree of certainty and a stable backdrop before committing to a space, exacerbating the vacancy issue.
Essentially, we have constructed an excess of high-end market spaces. In order to attract tenants, someone will have to lower lease rates. Once this happens, others will follow suit, leading to the emergence of a new paradigm.
Recession
In January, I predicted that we would avoid a recession based on the resilience of consumers. So far, my prediction remains correct. The next four months of 2023 will be intriguing to observe.
Currently, unemployment rates are low, wages are increasing, and individuals are spending money on services such as travel. However, it is evident that the average consumer is accruing excessive credit card debt in the process. As interest rates rise, resulting in higher monthly payments, consumers will have fewer dollars available for spending.
Politics
On the political front, we have an extensive list of Republican hopefuls and an indicted frontrunner, with several months remaining until the primaries. On a global scale, unrest persists in Ukraine, China remains an observant presence, and record-breaking heat, rain, and storms continue to ravage the world.
The list of contenders will dwindle as we safely pass the storm season. The New Year will mark the beginning of an election year, filled with promises and possibilities.
Allen C. Buchanan, SIOR, is a principal at Lee & Associates Commercial Real Estate Services in Orange. Should you wish to reach out, please email [email protected] or call 714.564.7104.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
