ARE HARD TIMES AHEAD FOR THE COMMERCIAL REAL ESTATE MARKET?

Since 2010 the industrial/commercial real estate market has seen a steady lowering of the vacancy rate. The steepest decline in the vacancy rate occurred from 2014 to 2016. Ever since 2016 vacancy rate has gotten smaller and smaller until in most Orange County areas the industrial vacancy rate now ranges from 2.2% to almost zero.

With asking lease rates and sale prices increasing because of less product, many tenants and buyers have decided to look outside the county or to better utilize their existing space. This has recently resulted in new listings to the market place now having a longer shelf life because of reduced demand. The demand that remains is not in a hurry to pay the asking price anymore. Therefore, property sellers are having to reduce their asking price and landlords are having to include free rent to new tenants, something the market has not seen in some time.

Since the economy continues to do well the Federal Reserve raised interest rates the last few days of September, and will again before the end of 2018. The Fed is also expected to increase interest rates at least three (3) times in 2019. Some economists see that as a way to be able to lower the same interest rates in the future to help the economy if and when the inevitable market downturn occurs.

When could this downturn occur? “I think you’ll see the stock market seriously decrease in value just before the commercial real estate market declines”, Dan Kruse, Principal of Lee & Associates said.

It’s not a matter of IF, it is a matter of WHEN. With possible flashpoints around the world, trading tariffs, and leadership like we’ve not seen before in our history, things could happen very quickly. Keep your powder dry.

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