Where Will Commercial Real Estate Be In 1 Year From Now? (Updated For 2019!)
Welcome to 2019! A new year means new predictions of what lies ahead. Commercial real estate is a diverse and deep-rooted industry. It can affect almost all aspects of the business world. Commercial property serves as the housing for companies, an income source for investors, and career jobs for agencies. CRE changes ripple into all corners of the corporate system.
Uncertain Waters In The Neighbor’s Pool
Have you watched the news or picked up a newspaper in the last 4 months? You might have noticed some stomach-lurching drama happening with the stock market. The uncertainty of these ups and downs can cast a looming shadow onto the commercial real estate market. Are we next? Good news: the CRE market moves much slower than its stock trading neighbor. This means you shouldn’t be expecting a sudden sink in pricing, demand, or investment values.
With that said, (drum-roll please…), we expect sale prices to stay steady throughout 2019. We have hit a peak in commercial ownership value. Unless you plan to manufacture gold, any further price increases would become non-viable for most companies currently in business. A booming economy, low unemployment, and historically-low vacancy rates means there is still plenty of demand to keep the sale-price ticker level for now.
I Rent; What About Me?
Many of the business clients we talk to have had their rent significantly increase within the last few years. Sound familiar? Here’s the scoop for 2019. Well-located properties with desirable features/layouts will remain sought after. This will keep top-of-market lease rates strong but consistent. Again, we are approaching the point where companies would start losing their profitability if rental rates were to increase even further.
There is a flip-side here. For properties that have less-than-stellar market positioning, we forecast lease rates dropping to attract tenants. Even in the highly-competitive South Orange County sector, we have seen particular spaces sit for months without action. This has been due to unwanted floor plans, lacking improvements, or hard-to-access locations. In 2019, you can look for more of the same. The dust-covered buildings will have to adjust prices lower for tenants to be found.
As a business owner, you must decide between two choices. Do you want the ideal upgraded space your company needs, or would you rather save money and take a location that doesn’t have features you desire?
As a landlord, you must decide between a different set of choices. Do you want to put in the money and time to create a competitive listing at a higher lease rate, or forgo the necessary preparation and drop your monthly rental number? Try to dodge on both, and it results in a languishing listing that sits vacant, void of cash flow for a long period of time.
The Price Of Money
The talking heads on TV say the US Government is “tapping the breaks” to avoid inflation by raising federal interest rates. What does that mean for the interest rates for office or industrial building loans? There are a plethora of lender options available for a business looking to buy a commercial property. Focusing on one of the most popular choices, the SBA 504 route, you’ll probably see interest rates going from 5.5% fixed, increasing to 5.8% by the end of 2019. This is still an all-time affordable number for purchasing money. For comparison, the SBA 504 interest rate was at 7.72% in November 2008.
Hot Trends To Watch For In 2019
Health conscious, tech-centric lifestyles are on the rise nationwide. This influences the companies and ideals that businesses are aiming for. Also, population centers are exploding in size, with multi-family residences being built left and right. Look for more service-related business to seek the use of industrial buildings. Traditionally, you could drive through a commercial business park and only see manufacturers, distribution companies, R&D firms, and other heavy-lifting users.
In 2019 you’ll find companies using warehouse space to cater to a new generation of family needs. This year watch for more performing arts businesses, pet services, gymnastics and dance studios, volleyball and basketball courts, personal training and gym services, martial arts classes, and aquatic-use offerings in industrial buildings.
A continuing trend from the last couple of years, we see 2019 companies seeking smaller office spaces for the same amount of work. Office users and office/warehouse industrial companies no longer need the huge office spaces that were once required. The explosion of technology has moved many companies to virtual workspaces. Employees connect directly from their homes, local coffee shops, or anywhere else in the world. Companies now want bigger warehouse areas, and look for simple office setups rather than complex multi-zone labyrinths.
End Of The Beginning
That wraps up our quick commercial real estate predictions for 2019. Bookmark this page and check back in throughout the year to see what happens as the fog of the future dissipates. Do your predictions for the year match with ours? Send us a message or leave a comment below to let us know if you agree, disagree, or have a totally different angle of thought on something we’ve covered.
Here’s to a happy and profitable new year!