All of us in the business community, including those of us in the commercial real estate industry, must deal with uncertainty no matter what condition our local, state and national economies are in. Every business decision we make involves a calculation of risk, and that risk is mitigated by our level of knowledge about the factors most likely to impact profitability. In a rapidly expanding economy, risk may be minimized by the natural rise in demand for our product or service. However, the economic growth we have experienced for the last decade came to an abrupt end due to the response to the COVID-19 virus spread. As a result, business owners are uncertain about the near term economic outlook and must recalibrate their decision making to reflect higher levels of risk.
Making the decision to buy or lease facilities for business use is never easy, but always important. In fact, the cost of facilities is one of the largest line items in the budget for virtually all businesses. Therefore, even small changes in real estate market conditions can significantly impact the bottom line. When the last recession hit in 2008, real estate activity dropped precipitously followed by a reduction in property values and lease rates approaching 40%. But the cause of that downturn was a systemic failure of our financial system, not a sudden reaction to a virus. So, right now, we don’t know have enough data to say exactly what will happen to property values or lease rates going forward. However, vacancy is at an all-time low and the construction pipeline is relatively limited, both of which could act a cushion for a soft landing. Vacancy in certain Central County San Diego markets could triple and still be under 10-12%, and lease rates could fall by 15% and we would be right where we were just two years ago.
Whatever your threshold for risk may be in terms of your facilities, having a full understanding of the current conditions and trends is critical to making good and informed decisions. As an industrial property specialist in the Central San Diego market, I have the experience, resources and market knowledge to assist you in that effort. The sooner I have the opportunity to work with you, the more value I can deliver to you and your company. Contact me today. Be healthy and stay safe.
See original article from Voit Real Estate Services.